How Residential Insurers Are Approaching the IoT

By Mary Catherine O'Connor

Internet of Things technology is set to deeply impact every type of insurance product and all categories of insurers. Here, we survey how and why residential insurance providers are looking to leverage smart-home products.

Auto insurers have spent years testing and evaluating the use of connected-car technologies to better understand drivers' habits in order to more accurately measure actuarial risks. But more recently, interest in the IoT has spread across the insurance industry, and IoT platform providers have begun courting insurance providers of all stripes, in the hopes that they, too, will find value in IoT-enabled data collection.

A 2015 report from Accenture found that 80 percent of insurance providers in Europe, the Americas, South Africa and Japan believe that the Internet of Things will disrupt their industry. So where and how is the industry approaching IoT deployment?

Ring's internet-connected doorbell

In the United Kingdom, the startup Neos is selling smart-home equipment—an internet-connected alarm system, an IP camera, and connected flood and fire sensors, paired with a mobile app that alerts homeowners to an event such as a break-in or fire—as well as customer service and, through a partnership with insurer Hiscox, a home insurance policy. Neos recently completed beta tests in homes across Great Britain, and just announced £1 million ($1.2 million) in seed funding.

But rather than launch their own insurance services, some IoT platform and service providers are looking to provide smart-home products paired with customer services under white-label arrangements.

"A year ago, we were looking at smart-home products and the challenges [of programming and networking them]," says Curt Schacker, the EVP of connected products at IoT platform provider EVRYTHNG. Finding that managing smart-home devices still requires a great deal of effort and computing acumen on the part of consumers, Schacker and his colleagues concluded that consumers would embrace the idea of an outside service provider stepping in and demystifying the technology.

"Insurance companies have a great deal to gain from using devices that track leaks, poisonous gas, a garage door or window left open," Schacker says. "These [events] often turn into claims that [home] insurers have to pay." If insurers can gain access to data being generated from sensors installed within a home, such as internet-connected carbon monoxide detectors, water leak sensors and smoke alarms, then those insurers could assume a sort of digital guardian role by taking actions—such as calling policyholders or dispatching emergency services—in the event of a mishap.

Last month, EVRYTHNG began offering providers of residential insurance what it calls an IoT Insurance Pilot Kit, which includes internet-connected fire, water leak and security sensors, as well as a smart-home hub that connects to all of those sensors and uploads data to EVRYTHING's cloud-based platform. The kit also comes with a mobile app and a web-based interface that consumers can use to monitor and manage the devices. The insurer would access the cloud-based platform and use it to monitor the health and security of the policyholder's home, based on the sensor data, and communicate with the policyholder if the data indicates an emergency situation or a problem—a leaky hot water tank, for instance. Essentially, the kit is designed to be a white-labeled, end-to-end smart-home solution offered by the insurance company.

Early conversations with insurers have been promising, Schacker says, and some are considering running pilot programs to leverage the starter kit, though he cannot yet share any specific information regarding timelines or companies. But he does say that insurers tend to be aligned around one particular use case: leak detection.

EVRYTHING's Curt Schacker

"Leak detection is becoming what the connected fridge was to the early days of smart home," Schacker explains, calling it "kind of the killer app, because domestic water does damage over a long period of time." The damage, he says, is difficult to detect until it has resulted in sometimes sizable claims. Domestic water refers to water supplied to a home via its plumbing system, as opposed to water that might enter a home due to a flood, hurricane or other natural disaster.

EVRYTHING is not the only IoT platform provider that is wooing home insurers on this white-label approach. Last February, ROC-Connect launched a product called ROC-Master that is similar to EVRYTHING's new offering, in that it is a white-labeled product based on a smart-home hub and a managed service and smartphone app. But with ROC-Master, the prospective insurer needs to provide its customers with a suite of smart-home devices, such as leak detectors, connected fire alarms and home-security devices, that work with the hub device. When it announced the offering, ROC-Connect said it was already involved in pilot programs, but no customers have been revealed during the intervening months. According to a company spokesperson, ROC-Connect is currently in discussions with an insurer based in the United Kingdom about offering ROC-Master to its customers.

Yesterday, ROC-Connect announced its latest product, called Home Safety Kit, targeted at insurers. This product kits together internet-connected fire and water sensors, made by Ozum (which is ROC-Connect's brand) with the ROC-Master hub and managed service and app. The new product also includes what ROC-Connect calls a Home Safety Scorecard. This service, made possible through a collaboration with global property data and analytics service CoreLogic, uses a house's size, location and features (data provided by CoreLogic) to create a risk profile for the home that is then combined with customer behavior data, pulled from the connected smart-home devices, in order to generate a customized safety scorecard. This is designed to help the homeowner mitigate risks by modifying behaviors and ensuring that the home's appliances, plumping and air-conditioning systems are in good working order.

In other cases, manufacturers of connected devices for the home are reaching out directly to insurers. In Germany, the insurer Allianz offers a special home insurance policy in collaboration with Panasonic that integrates a home-security service with leak detection, based on Panasonic's Smart Home system. Nest has partnerships with American Family Insurance and Liberty Mutual, through which policyholders in the United States receive a free Nest Protect smoke and carbon monoxide alarm, to which the insurer connects via the internet in order to confirm that the policyholder has a functioning detector. In some cases, the insurers also offer these customers discounted insurance rates.

American Family Insurance also has an arrangement with Ring, a manufacturer of internet-connected doorbells that use an integrated motion sensor, a video camera and a two-way microphone to allow homeowners to view who is at their front door and speak with them via the mic even when not at home. American Family Insurance customers receive a $30 savings on the $200 doorbell and, in some cases, lowered rates, on the premise that the doorbell can discourage burglaries or at least provide a means of identifying the thief.

British insurer Aviva, which says repairing damage caused by water leaks accounts for more than one in five of its home insurance claims, is offering its customers a connected leak detector called the LeakBot, as part of a larger agreement between Aviva and HomeServe, the company that markets LeakBot. Under the terms of the agreement, Aviva underwrites the cost of the devices and HomeServe sells repair and maintenance services when the smart-home devices (which currently consist of LeakBot and a connected thermostat) indicate trouble.

In one case, a U.S. insurance company has purchased an IoT technology provider in order to bring its products and services in-house. While it is mainly focused on insuring heavy equipment used in industrial applications, Hartford Steam Boiler (owned by Munich Re), recently acquired Meshify, a Texas startup that makes sensor networks and applications for Industrial Internet of Things uses. Yet, Hartford Steam Boiler does have an insurance product focused on home technology systems, including residential electrical generation and distribution, heating and cooling, air and water filtration, central vacuum, home security systems and swimming pools. This product also offers coverage for appliances and home computer networks.

A press statement about the acquisition states that Hartford Steam Boiler will use Meshify's platform "to provide IoT based services for small and medium size businesses and business chains."

But about a week later, Hartford Steam Boiler, in partnership with digital security consultancy Prescient Solutions, hosted a security workshop in New York City, aimed at consumers who use smart-home devices. During the event, hackers working for Prescient perpetrated a remote cyber-attack on an internet-connected model home inside the claims-training facility operated in Ohio by American Modern Insurance Group, a U.S. company also owned by Munich Re.

The workshop's purpose was to highlight common vulnerabilities that nefarious parties could use to infiltrate a home's IoT network by leveraging vulnerabilities in smart-home products, and to then show consumers basic steps that they can take to protect their homes from such attacks. Given the spate of recent cyber-attacks that leveraged poorly secured IoT devices, including products used for smart-home applications, insurers will likely evaluate more closely the safeguards that any smart-home product company uses before entering into any future tests or partnerships.