Smart technology is becoming increasingly crucial for reducing insurance losses for Property and Casualty (P&C) carriers. New smart home technology, such as internet-connected security systems, smoke detectors and sensors, can alert homeowners when there’s a potential issue and provide vital data and new revenue streams to insurers.
The most common issues facing insurance carriers include the need to reduce water damage claims and reduce fire damage claims. For example, the insurance industry spent more than $2 billion on water claims for non-weather-related damage in 2019 alone.
However, Internet of Things (IoT)-powered smart home technology can provide P&C carriers with vital data and insights into their highest claim events. This data can help to drive carrier loss reduction and reduce insurance claims.
Losses Incurred for Carriers
More than 98% of insurance losses are due to claims on property damage, according to insights from the Insurance Services Office. More than half of those claims are a result of fire and lightning (32.7% of total losses) and water damage or freezing (23.8%).
Insurance premiums cost a total of $1.22 trillion in 2018, of which P&C insurers accounted for 51%, according to the Insurance Information Institute’s (III) Insurance Factbook 2020. It also finds that P&C insurers paid $49.5 billion in property losses relating to catastrophes in the same year.
Every year, around one in 50 homeowners file a claim for water damage, which accounts for a quarter of all home insurance claims, according to III data. And the average cost of water and freezing damage claims is around $10,900. Fire damage is rarer, but the average claim comes in at nearly $80,000, according to III insights.
Insurance risk management is also affected by homeowners not having the right policies in place. For example, Hippo Insurance research found that 64% of homes are underinsured and 73% of people miscalculate the level of coverage they require. It also finds that one-third of homeowners haven’t updated their insurance policy for over a decade, which means their policies won’t have kept pace with the new digital world.
All of this translates to larger claims for carriers and bigger losses for customers.
Smart Home Tech and Claims Reduction
Homeowners are stepping up their efforts to insure and protect their homes. And installing smart home devices could make a significant difference in the number of claims they make and help to reduce insurance losses.
Installing smart features like alarm systems, smoke detectors and water monitors can prevent costly insurance claims. While other smart technology, like sensors that monitor the status of a household, can quickly alert users to a stove that’s left on or a door that’s left unlocked.
For example, Notion’s mature IoT partnerships result in a 10% loss reduction if homeowners have a smart device kit installed. This reduction increases to 20% if the kit remains online.
Smart home technology helps homeowners to prevent issues that could cause significant damage to their homes. It allows people to be more proactive in avoiding problems relating to water leaks, temperature changes and other events that cause smoke or carbon monoxide alarms to sound.
For instance, water damage incidents are often caused by leaks that could have been prevented through the use of smart technology. Installing sensors close to potential accident zones, such as near a dishwasher, washing machine or water heater, can quickly alert homeowners to a potential issue before it causes catastrophic damage. As a result, a washing machine leak that could previously have caused a house to flood can now be quickly detected and prevented to reduce water damage claims.
Likewise, installing sensors close to smoke alarms enables homeowners to receive an alert as soon as one sounds and take immediate action to remedy the problem.
Smart Tech and Loss Reduction
The use of smart technology devices is also crucial to insurance risk management and assists with carrier loss reduction. Notion data shows that installing two sensors can more than halve the number of water damage claims. Insurance carriers can use smart home systems data to understand their customers better and quantify risks more accurately. This ensures they make better strategic decisions and can help to reduce insurance losses and costs.
As a result, smart home device usage is on the rise, with Statista research finding the penetration of smart home devices will hit 57.2% by 2025. Furthermore, nearly half of millennials in America have at least one smart device in their home, and the IoT market will reach $520 billion in revenue by 2027, according to PolicyAdvice research.
A New Era of Risk Management
The insurance industry has traditionally been seen as slow to innovate, but that’s all changing as smart devices continue to proliferate in homes across the nation.
From a property insurer’s point of view, this is a win-win situation. Smart technology devices minimize the chances of damage and reduce the number of claims filed by policyholders. Insurers, therefore, need to rethink their claims and risk management approach and take more proactive strategies.
In addition to helping homeowners manage and mitigate potential risks, smart technology allows them to settle claims faster and enables insurers to assess damage more effectively. The data that smart technology puts in insurers’ hands helps them provide personalized coverage to customers and underwrite their risk more accurately. This is crucial to strengthening the relationship between insurers and their customers, using data-driven decisions to provide better products and services.
A more strategic approach to home insurance will result in fewer claims, quicker detections of potentially damaging issues, and ultimately reduce insurance losses. For example, the Notion Smart Starter Kit provides sensors and accessories that help homeowners monitor smoke and carbon monoxide alarms, open doors and windows, temperature changes, and water leaks. Expansion kits provide additional sensors to monitor across an entire home or small business.
Notion is helping insurance carriers revolutionize how they interact with customers, which increases loyalty and engagement. Discover how to reduce your insurance claims and attract new customers by partnering with Notion today.