How insurers are using smart-home technology

 

Vol 47: Issue 2 | July 2024

In short

• Beyond smoke detectors and alarm systems, some insurers are incentivising customers to use smart-home technology such as smart leak detectors to mitigate risk.
• Certain smart-home features can prevent claims, while enhancing customer engagement and helping insurers stand out in the market.
• Insurers that adopt smart-home devices into their claims processes need to navigate customer concerns around cybersecurity and data privacy. 

A flooded house was the last thing Melbourne homeowner Ash Grove expected to find when he returned from a three-week holiday last year.

A pipe in his upstairs bathroom had burst, causing A$130,000 worth of damage and forcing him and his family to move into a rental property for eight months while the repairs were made.

Though his home and contents policy covered the relocation and repair costs, the situation was a huge inconvenience.

Now back home, he plans to install leak detectors in his kitchen, laundry and bathrooms. “If I’d known about these before, it would have saved us a lot of time and heartache,” he says.

Protection from avoidable accidents

Grove’s story will sound all too familiar to property claims teams. Allianz Home Insurance data reveals almost 30,000 claims for burst pipes in 2022-23.

Meanwhile, water damage incidents accounted for nearly a quarter of all home insurance claims lodged through QBE in 2021, with the average cost coming in at A$5,000 and severe cases reaching more than half a million dollars.

Hoping to curb this trend, some insurers are incentivising customers to use smart leak-detector sensors — offering discounts on premiums, for example, or even giving the devices to policyholders for free.

Such sensors can be connected to smartphones via apps, issuing alerts when a leak is detected so the user can remotely switch off their water and prevent the damage escalating.

In Australia, Honey Insurance is leading the way in smart-home protection. When purchasing home and contents cover, customers receive sensors valued at A$250, which alert them to the ‘trinity’ of avoidable household mishaps: fire, water damage and theft.

They can identify water leaks; act as ‘co-alarms’ for smoke and carbon monoxide detectors; keep tabs on important entry points such as doors, windows, garages and safes; and monitor temperature changes, to avoid frozen pipes and other risks.

Customers who keep these sensors activated subsequently pay less for premiums, receiving a discount of up to 8 per cent every year.

It’s a mutually beneficial solution, with Honey helping customers to be more proactive about averting accidents that could otherwise lead to claims.

White-label insurtech, Open, likewise encourages the brands using its embedded insurance platform in Australia, New Zealand and the United Kingdom to incentivise smart-home technology.

Alongside smoke alarms and water detectors, smart-home security features such as cameras, doorbells, locks and motion sensors can earn customers discounted premiums to reflect their reduced risk.

Tech-insurer partnerships

In Hong Kong, significant seasonal weather fluctuations contribute to a high incidence of water damage claims. In this environment, the Water + Climate sensor from home security start-up Kangaroo can be a valuable claim deterrent.

In 2021, QBE Hong Kong partnered with the company for a limited-time promotion — offering free sensors to new home insurance customers.

Kangaroo co-founder Dhruv Garg says it was fascinating to see people used the device to notify them on their phone if they had a leak from a burst pipe, but also to keep precious items and family members safe — “from checking humidity where handbags or wine bottles are stored, to knowing the temperature in a baby’s room without waking them”.

Another partnership emerged in May this year between Hong Kong Broadband Network and AXA Hong Kong and Macau. The two companies have launched a comprehensive home protection package, combining fibre broadband with a home network security solution, smart-home solutions and home insurance.

The smart-home element of the ‘All-in-one Home Kit’ allows customers to easily add motion sensors, smart door cameras and other Internet of Things (IoT) devices in a convenient bundle, to manage and protect their virtual and physical properties.

Kenneth Lai, chief general insurance officer at AXA Hong Kong and Macau, says AXA has always been a strong advocate of customer centricity and innovation, and that this novel solution will “provide customers with comprehensive home protection that caters for their household needs”.

A growing number of insurers are following suit, partnering with smart-home technology companies to prevent and manage claims while also enhancing their value proposition, says Jennifer Kent, vice president of research at Parks Associates — a global market research firm that specialises in the analysis of IoT residential products.

“We do feel like we’re at the point where we’re starting to see some of the major [insurance] providers step into the market in a more real way,” she says.

Kent points to United States insurer State Farm’s US$1.2 billion equity investment in home security leader ADT. When the deal was announced in 2022, State Farm’s chief operating officer Paul Smith said it would enable the insurer to “provide smart-home technology that takes us from our ‘repair and replace’ model to a ‘predict and prevent’ mindset”.

So far, data from Parks Associates shows that US consumers are favouring smart-home technology such as video doorbells and cameras, which not only deter theft and intrusion but also generate evidence that can be shared with insurers in the event of a claim. However, uptake of products that stand to have the greatest impact on claims — such as smart leak detectors — is still low.

“But now that we have these partnerships, we expect to see more data emerge around which homes have which types of devices and whether or not claims are being impacted in a positive way,” says Kent.

Proof that the technology delivers value will likely give rise to more tech–insurer partnerships, she adds, as will insurers’ efforts to maintain the affordability and accessibility of cover, particularly as extreme weather events drive premiums up.

“I think anything that can help turn the tide on profitability, or that can keep insurance somewhat more affordable, will be something insurers strongly consider.”

Navigating challenges

Though smart-home technology delivers many benefits, it does raise some concerns — especially in relation to cybersecurity and data privacy.

Kent says insurers must ensure that the data that claims teams collect from smart devices is properly protected and used responsibly to maintain customer trust.

“Insurers need to be very transparent about how they handle the data,” she says.

“They should also clarify its terms of use. For example, if a leak detector battery runs out without the customer knowing and a leak occurs, will the claim still be paid? Customers will want to know that the devices won’t put them at a disadvantage; they want to trust that their insurer is going to treat them the right way knowing they have these devices in their home.”

Despite challenges, there’s certainly appetite for the technology, with a recent Parks Associates study finding that one-third of US internet households with homeowner’s / renter’s insurance would switch providers to acquire smart devices.

This represents a major opportunity for insurers, says Kent. “Customer satisfaction goes through the roof when smart-home products or associated discounts are offered. Customers who received a discount for smart-home devices from their insurance provider gave them an NPS [Net Promoter Score] of 31. Those who don’t receive any sort of discount rated it a 10.”

According to Kent, increased uptake of smart-home technology allows insurers to reduce risks, enhance customer engagement and differentiate themselves in the market. “It’s a win–win strategy that benefits the insurance industry and homeowners seeking enhanced protection and peace of mind.” 

LeakBot: plugging the claim drain

A proof-of-concept pilot is underway for a smart water-leak alarm designed specifically for Australian and New Zealand conditions. Ondo InsurTech Plc, a United Kingdom leader in claims prevention technology for home insurers, is developing and testing a modified version of its LeakBot product in partnership with IAG’s innovation arm, Firemark Ventures.

UK insurers, including Hiscox and Admiral, already supply the device to — and fix leaks for — some policyholders, free of charge. Homeowners simply attach the device to a water pipe near their stop tap (sometimes known as a stopcock or shut-off valve), then connect it to their home’s wireless network.

LeakBot’s patented Thermi-Q technology uses temperature to monitor mains water usage across the entire home and detect leaks of any size. If a leak occurs, the homeowner is notified via a mobile app, which provides access to a team of LeakBot engineers to find and repair any damage.

Given that stop taps are located outside properties in Australia, the device under development is being built to withstand all weather conditions.

Research conducted by Ondo shows that in the UK, LeakBot lowers water damage claim costs by 70 per cent and reduces the frequency of claims by 39 per cent. 

Popular smart-home tools

• Smart lights and blinds — can be programmed or accessed remotely to create the illusion of occupancy when homeowners are away
• Smart locks — keyless locks that enable users to lock and unlock doors remotely
• Home security — video doorbells, motion sensors and cameras deter intruders and provide visual evidence of crime
• Door and window sensors — send alerts when entry points are left open
• Smart sockets — can be accessed remotely, so users can check appliances are switched on or off
• Smart detectors — water, smoke, carbon monoxide and temperature sensors send live alerts to customers’ phones, so they can act before a repair or claim is necessary

Read this article and all the other articles from the latest issue of the Journal e-magazine.

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