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The Future: Usage-Based Premiums and Smart Homes

Usage-based technology has been utilized for some time with auto insurance to track mileage and driving behaviors. You drive fewer than a certain number of miles and safely (no speeding, distracted driving, etc.), you get the benefit of premium discounts. Usage-based insurance (UBI) in this case is typically powered by in-vehicle telecommunication devices (telematics)—technology using a plug-in device or is already integrated in original equipment installed by auto manufacturers. The technology can also be made available through mobile applications. With smart homes now all the rage, UBI may be the next big push in homeowners insurance.

The Smart Home Market

The estimated value of the global smart home market revenue by 2024 is $159 billion, with the number of smart home devices that will be in use by 2023 forecasted at 6.4 billion. It’s estimated that 70 million homes already have some type of smart home device installed. These devices include everything from thermostats to motion sensors and security, light bulbs, smoke detectors, freeze-detection indicators, detection of water usage anomalies (for leaks) and water damage and humidity indicators (for potential mold build up), providing data about home unoccupancy and occupancy. When a home is unoccupied, losses like theft and water damage tend to rise. With more people spending time at home, will certain claim trends decline and benefit the homeowner? User-based technology may tell the story and also spawn even more customized smart home insurance programs.

People Are Willing to Share Their Data

According to a Consumer Research Report from LexisNexis, 78% of smart home customers are willing to share their data for the purposes of insurance. Seventy percent in the survey said they would invest their own money to buy devices for an insurance discount. There is also evidence, according to a study by LexisNexis in conjunction with Flo by Moen, that some devices prevent losses. The study shows water leak detection and management devices can help reduce water leak claims frequency by as much as 96% and severity by as much as 72%. As smart home technology continues to evolve, insurers have the opportunity to utilize real-time telemetric data for the assessment of risk and prevention of loss.

Rewarding Insureds for Smart Homes

Several insurers already reward smart tech owners by reducing home insurance premiums, subsidizing the cost of devices, or even paying to install them. InsurTech HIPPO, for example, offers new customers free cutting-edge sensors that detect water leaks. American Family insurance also provides savings on homeowners insurance for those who install smart home technology. Farmers partners with ADT Security Services to give customers in certain states the opportunity for premium discounts. Nationwide offers homeowners discounts for certain smart home protective devices, such as sensors, security systems, and smoke detectors. Progressive partners with smart home security company SimpliSafe for potentially lower rates. Travelers is integrating its insurance coverage with smart devices such as Amazon’s Echo to help homeowners quickly find information about their policy and get reminders about routine maintenance that could help keep rates low. The company also offers a discount on smart home device kits. 

Taking UBI for Homeowners Further The key in delivering UBI for homeowners similar to what’s being done with drivers and auto insurance is unlocking the data collected confidently and in a way that will deliver real value to both homeowners and insurance companies. Insurers should continue to work with their tech partners to help understand what the smart home data is showing regarding loss trends in order to create products that truly reflect the risk profile of the homeowner.

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