The Internet of Things (IoT) is expanding exponentially, with connected devices permeating our personal and work lives and, increasingly, making homes smarter and safer. The rise of the smart home is critical for insurance carriers, who realize the benefit of having accurate, real-time data from IoT-based smart home insurance.
McKinsey and Company estimates that 127 new devices go online every second, and predicts 43 billion devices will exist by 2023, nearly three times more than in 2018. As home IoT technology becomes commonplace, insurance carriers will increasingly encourage homeowners to pair their smart devices with insurance to reduce losses.
The Growth of the Smart Home
Home IoT tech has come a long way in a short period. Even a few years ago, the thought of having smart homes that we could monitor while at work or away for a weekend would have seemed fanciful.
But it’s now common to see houses equipped with connected doorbells, kettles, lights, refrigerators, thermostats and washing machines all controlled via apps or voice commands. And the array of devices fitted with internet connectivity is only increasing. GlobalData research suggests the smart home market will double in revenue to $75.3 billion between 2020 and 2025, with North America contributing 75% of that market value.
Further fueling these smart home trends is Matter, a connectivity standard explicitly designed to make connected devices interoperable, reliable and secure. The standard collates insights from smart devices across the home and recognizes patterns to make homeowners’ lives easier and prevent disasters.
From an insurance perspective, this increased connectivity and growing IoT adoption is excellent news. Connected devices help insurance carriers source rich data around home security and fire and water leak prevention that influence insurance claims. But simply sending new connected devices to homeowners isn’t enough. Carriers need to ensure devices are switched on, connected and constantly gathering and submitting data.
Pairing IoT Devices With Insurance Will Change Risk Prevention and Reduce Losses
Insurance firms can gain real-time assessments of what’s happening in a home, which helps predict problems before they lead to claims. Advanced risk assessment and prevention are crucial to minimizing the impact of issues like fire and water damage. But they’re also vital as devastating climate events continue. For example, natural disasters in the first six months of 2021 forced U.S. insurance firms to pay out $42 billion in compensation, which was the highest figure in 10 years, according to Aon research. Further, the Texas power grid was revealed to be “woefully unprepared” for winter, and an unprecedented number of hurricanes and storms are predicted to continue through 2022.
IoT-based smart home insurance can also learn lessons from the auto-telematics industry, which uses connected devices to track information like driving time, mileage, speed and cornering activity. This data is vital to monitoring driver habits, reducing their losses and enabling enhanced risk prediction. Likewise, data from home devices will help home insurance carriers to reduce their losses and improve claims speed.
Smart Homes Will Continue Transforming How Carriers and Customers Relate
Increasing competition and consumer expectations mean carriers can’t afford to provide old interfaces or poor user experiences. Smart home trends offer a wealth of possibilities to address this. For example, connected security cameras provide real-time footage of what’s happening in a home to simplify and speed up claims. Smart lights can monitor energy usage, environmental sensors can help observe usage and risk data, and entry alarms and smart locks can help provide vital evidence of break-ins.
IoT-based smart home insurance needs to be integrated with these devices to encourage engagement and trust among homeowners. This need will only increase as customers become savvier about the benefits of kitting their homes with smart devices and, as a result, move away from insurance firms that don’t offer these integrations.
Marketing and Incentives Will Be Imperative
In the next 12 months, the growth in connected devices could be affected by shortages in the computer chip supply chain. This is likely to impact the cost of materials and, in turn, drive up the price consumers have to pay for new IoT devices. As a result, the onus will be on marketing to get creative in their pricing and engage consumers with new incentives without affecting price points.
In the face of higher margins and increased competition for customers, the focus needs to shift to software over hardware wherever possible. New development models will see data sharing surge that help offset program cost, and carriers must expand customer benefits in exchange for their data to offset risk.
Savvy carriers are already teaming up with smart technology providers to offer discounted devices and sensors to new policy applicants. And other insurance firms are rewarding homeowners who install smart devices with more differentiated offers in subsidized smart tech and premium reductions.
The Smart Home Insurance Model of the Future
Increased inflation, supply chain shortages and ongoing COVID uncertainty will continue to affect buying habits, investment levels and product pricing. As a result, there’s more pressure on carriers to prove their IoT-based smart home insurance models.
The IoT and insurance are inextricably linked as homeowners look to reduce their costs and live more efficiently, while carriers seek to reduce claims and manage risk. Moving into 2022 and beyond, the onus is on insurance firms to think smart and make life easier for their customers.
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