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Smart Home and Insurance: Insurers Need to Get Real

Smart-home technologies are rapidly becoming mainstream, and insurers have an opportunity to participate in this market. When engaging with potential partners, even the largest insurers should have a realistic appreciation of their level of influence over consumers, and therefore what they can bring to the table for smart-home device-makers, installers, and distributors. In conversations with firms that have tried to partner with insurers, we found that too often large insurers show up at the table with an inflated sense of the value they can bring. This can backfire on insurers. Frustrated with the exaggerated demand from insurers, a major North American smart-home player has recently curtailed the amount of data it is willing to share with insurers.

Many insurers seem to believe that popping a page on their website with a discount and a link to their partner’s site has tons of value. They are wrong. Insurers’ websites don’t generate that much traffic—they are simply not a great lead-generation channel. Also, insurers’ interests are neither strictly aligning with what consumers care about nor what technology can do yet.

In an ideal world, what insurers care very much about (the area causing the largest losses) would align with consumers’ concerns and with what smart-home technology can accomplish. Unfortunately, there is no perfect alignment. When it comes to the risks they face at home or what smart-home technology could do for them, consumers are first and foremost concerned with intrusion and burglaries. Neither P&C, nor life, nor health insurers care that much about that issue, though. P&C insurers are far more concerned with water leaks, freezing pipes, and fire (US$20.7 billion in claims in 2014, according to Verisk) than with burglaries (US$1 billion in claims in 2014, according to Verisk). Falls are a big deal for health insurers, costing US$100 billion in medical claims, yet they are not a widespread concern across all demographics, nor are they a problem smart-home technology can readily fix the way a water valve shut-off can prevent flooding.

Another example of a lack of a convergence of interests: Managing utilities has been a reliable driver for consumers to embrace smart-home technology, and indeed the technology performs well in that realm. Though preventing temperatures from dropping and pipes from freezing is important to insurers, lowering consumer utility bills is not something directly relevant to them. Insurers don’t pay claims when consumers overheat their houses.

Insurers can and should play a role in the connected home ecosystem. The first step is to be very realistic about their own capabilities when engaging with potential partners.

For more insights, check out my recent report The Smart Home: Opportunities for Insurers.