Internet of Things (IoT) and early warnings for the home insurance industry

The Internet of Things (IoT) has been predicted to be one of the biggest technological innovations in recent times. That’s a big claim, but a well-founded one, as the IoT will help home insurance companies take on risks in a more-efficient and informed way by providing them with the data, monitoring, and analytics that they need to make informed decisions.

To manage risk effectively, home insurance providers need to have a clear understanding of what the IoT is and what it can do. By giving clear data, the Internet of Things will help companies better understand their risk profile, protect their profits, and better serve their customers.

What is the Internet of Things?

The Internet of Things (IoT) is what happens as a greater number of devices become connected to the internet in one way or another, allowing them to collect and exchange data. For example, a connected home water sensor can detect when there is water damage. The sensors are small, affordable, and easy to use, with a lot of potential for home insurance and homeowners alike.

According to data from IoT Analytics, there are currently more than 12.2 billion devices, and will be approximately 27 billion connected Internet of Things devices by 2025. With the increase in smart devices in homes, insurers such as Hippo, Nationwide, and American Family are now offering more innovative policies for homeowner insurance.

Smart homes are being equipped with sensors that help homeowners identify things such as accidents and fires before they happen, which in turn allows these insurers to provide more affordable rates for their customers.

Last week, we wrote about using telematics and wearable devices to grow your health insurance offering. Using precisely the same process, data from IoT devices can grow your home insurance products.

A new era for home insurance with the Internet of Things

The use of smart technology in an average US household is now up to 25 connected devices, according to Deloitte. This includes laptops, smartphones, streaming devices, smart TVs, headphones, and gaming consoles.

Many homes have devices such as smart thermostats and home security systems that can detect when there is a potential issue. These connected devices can signal the danger and alert homeowners of anything that may be wrong, such as a break-in.

• Some smart door locks will automatically lock when left shut for a period of time and alert customers via their app if the door is opened
• Smart thermostats can have a minimum temperature set, so even if the heating is “off” they can prevent the pipes freezing and bursting
• Smart fire alarms give customers an early warning when fires are about to start, allowing them to take immediate action
• Smart refrigerators alert users when food is about to spoil
• Smart plugs allow users to turn them off remotely to avoid leaving appliances on throughout the day, which can reduce the risk of a fire

As technology advances, more applications will emerge and become commonplace as Internet of Things technology becomes more embraced.

By being connected, IoT devices can not only detect that something is potentially wrong, but also alert the homeowner immediately. This early warning can potentially prevent a catastrophe that would otherwise result in an insurance claim. Having IoT devices installed in their homes also gives customers extra peace of mind as they know that their property is constantly monitored.

Additionally, Internet of Things devices can be linked to home insurance systems to pay out automatically and offer discounted premiums for customers who use such devices. Data can also be processed to predict future home insurance claims, enabling insurers to offer more-accurate (and potentially lower) rates.

Benefits for the home insurance industry

The Internet of Things has the potential to revolutionize the home insurance industry, improving customer service and reducing costs for both consumers and insurers. The benefits include:

• Cost-efficiency: it reduces the need for human labor by automating tasks or connecting devices
• Customer service: the Internet of Things can also provide better service through automated alerts to customers when they are due for an inspection or renewal
• Empowering customers: the IoT provides customers with real-time data, empowering them with more control over their own information
• Improved relationships: the Internet of Things allows home insurance providers to be more responsive to customer needs without relying on expensive research methods

Challenges in using the Internet of Things

The challenges that exist in using the Internet of Things in the home insurance industry include:

• Lack of standardization: the different types of sensors, devices, and systems can make it difficult for insurers to understand what they need and customers may not set them up correctly
• Privacy concerns: some customers may be worried about their data being available, such as location, habits, and activities
• Security risks: hackers can exploit insecure Internet of Things devices to access personal information

To capitalize on this trend, you need insurtech

The use of the Internet of Things in home insurance is a relatively new subset of fintech that’s poised to be the next big thing in the home insurance industry. Data from algorithms, predictive analytics, and machine learning allows home insurers to decide how to price their products. These tools help them analyze a customer’s risk before deciding whether or not to accept them as a client.

Processing data from the Internet of Things requires an evolutive approach to data management. This allows you to take data from high-tech areas like IoT and work with it within your existing systems, without having to do a full rip-and-replace digital transformation.

To find out more about evolutive data tools that allow you to take advantage of the Internet of Things for home insurance, book a demo.