The Insurer’s Playbook On Smart Home Point Of View

The Insurer’s playbook on Smart Home Point of ViewThe Smart Home’s ecosystemMany of a person’s activities and needsrevolve around his or her home; the homehas touchpoints with many aspects ofpersonal life from health to property, frommobility to financial and personal security.Moreover, the Internet of Things revolutionis most likely to centre on the home, whichwill increase its importance in a person’slife and make it the “control centre” formost daily activities.Starting from the above-mentionedtouchpoints and the technological breakthroughs we can expect, behaviouralanalysis will become a vital factor. Insurersneed to leverage this information toimprove the way they serve customersand shape their offerings in the future. Examining at-home behaviour will be a goodinformation source that is also transferableto other areas. For example: mobilityhabits usually start and end at home (car),a physical ailment may force someone tostay at home (health), eating and exercisinghabits generally take place in or aroundthe house (life & health), mortgages andother financial products are often linked toa person’s home (finance).If all devices, appliances, and tools in a person’s life are connected to each other, theyare able to communicate, collectively learnfrom observed habits and provide a responsebased on external conditions. The home willknow where the car is parked and will alert theowner if something harmful might be happening nearby (accident, fire, hailstorm); the homewill analyse air, water, sleep patterns and suggest changes in nutrition or behavioural habitsto promote better health. Home applianceswill communicate directly with users andsuggest ways to optimize the use of resources(energy, food waste, etc.).If such behavioural data is included in creditscoring and premium calculations, positivehabits can be rewarded with concrete monetary savings: financial customization andoptimization will be increasingly accurate. Theultimate objective of collecting and processingdata quickly and thoroughly is not only to improve customer profiling, but also to actuallyreduce risks exposure by suggesting behavioural changes, preventing harmful eventsor foreseeing wrong behaviour and technicaldefects. The services provided will be stronglyfocused on prevention long before “things”happen.09

Monitor DeloitteMature and immature marketsIn order to create a focused and targetedoffering for insurers in the home telematics segment in the future, we need toclassify markets according to their givenmaturity. It also seems relevant to classifymarkets, as consumers from the NAFTAand EU zones will account for only 22% ofglobal consumption in 20306.Immature markets are driven in largepart by the growing middle class, whichwill itself have a strong impact on theeconomy. Total middle class spending inthe Asia Pacific region is expected to growfrom US 4.9 trillion in 2009 to US 32.9trillion in 20307. The housing and real- estate market is not going to be spared bythis development, and we expect homeownership to grow in these countries.Behavioural economic research indicatesthat losses loom larger than gains, implyingthat preventing a loss is more important toindividuals than gaining more wealth.8 Thiswill introduce unprecedented risk adversityin the middle classes of emerging markets,opening up opportunities for insurers.The perception of what constitutes a lossdepends on a set reference points. If thereference point is “owning a house/ apartment”, then people are more likely to buyinsurance to avoid losing this quality of lifestatus.We feel there is a strong probability thatthis growing middle class is going to technologically leapfrog Western developmentand directly move into homes with smartfunctionalities. Thus, insurers need to beready to offer unconventional and digitalized products that encompass and utilizeSmart Home data in order to gain quickaccess to this market. In certain emergingmarkets, there could also be public sectordemand for aggregated, analysed, and predictive Smart Home data to, for example,foresee pandemic spreads (e.g. sensorsin water pipelines). This could motivategovernments to incentivize Smart Homeinitiatives, lower data privacy barriers andalso grant access to additional upstreamMature markets show a different picture,as they are very saturated in propertyofferings, and the commoditization ofproducts is quite well-developed. They aredriven by empowered consumers with asignificantly reduced attention span ( 30%drop in the last 15 years9) and a stronginterest in and demand for convenienceproducts. The real-estate ownershiplandscape is also tilted by Gen Y userswho tend to more widely accept the collaborative (or sharing) economy10 – a trendthat is expected to significantly impact capital-intensive investments such as homes.Furthermore, insurance incumbents willface significant market-entry threats fromtech-savvy firms focused on the customerexperience, who have more frequent interaction points with customers.Here, the leap forward is quite relevant toinsurers; they would do well to embraceit, as the more classic products becomeobsolete, the greater the churn will be.The Economist Intelligence Unit, United Nations, Monitor Deloitte AnalysisTversky & Kahneman “Prospect Theory“9Microsoft, Monitor Deloitte Analysis10Deloitte University press6 7810and potential players to enter the micro- insurance market.

The Insurer’s playbook on Smart Home Point of ViewIt is questionable whetherhardware providerswould be willing to buildthe extensive servicenetworks insurers havetodayOpportunities for insurersThe question that remains to this point, ishow the insurer is actually going to accessthe market, given that hardware providerscurrently own the customer interactionpoints.For mature markets, Deloitte has undertaken extensive research and conducteda Smart Home survey for the Germanmarket to better understand what movescustomers to buy Smart Home productsand implement them in their home.Findings indicate that one of the key barriers is a lack of trust in the data security ofthe Smart Home applications.Market leaders could capitalize on theirsuperior brand with a proven track recordin keeping highly sensitive data (e.g. medical records) safe for decades. This couldovercome the initial hesitation in buying11Deloitte Smart Home Survey 2015these products, especially among the oldergeneration, who are currently less likely topurchase Smart Home appliances (eventhough they might benefit from them). Oneof the most interesting results of the studyfound that individuals would be willing topay for additional services, such as securityservices (23%), a 24-hour service hotline(22%) and installation of the equipment(20%). Today it is questionable whetherhardware providers would be capable(and willing) to build up such a servicenetwork in order to sufficiently serve thesedemands. Consequently, market leaderscould get a foot in the door by providingthese services in cooperation with hardware providers, while simultaneouslygathering data from the devices.Financially speaking, the market potential is substantial, as over one-third ofrespondents said they would be willingto pay more than 20 per month for asimple bundle including the hardware,alarm system and installation services.11Still, to stay relevant, companies will needto make fundamental changes in productdesign and bundling and stay extremelycustomer-centric, while accepting alternative streams of revenue besides insurancepremiums. Also, a potential reduction inrisk exposure due to governed preventiveincident and service management canprovide a substantial profit contribution.However, a premium downward spiral willfollow, given that additional revenue pockets remain untapped.In immature markets, there is a distincttrend towards new house ownership, dueto the growing middle class. As previouslymentioned, the insurers strategic optionsneed to evolve from the classic productsfor property and casualty. If the leapfrogging occurs as predicted, then demandwill emerge for homes with Smart Homefunctionalities in particular. Insurers willneed to adapt their offerings and be willingto extend services and products in orderto meet the demand. Additionally, we arelikely to see different coverage and higherclaims than in other markets. Emergingmarkets should be seen as a long-terminvestment or ideally as a playground forproduct innovation, where insurers candevelop and pilot more experimentalofferings.11

Monitor DeloitteOutlook andchallengesOverall, it will take some time for insurers to progress, asthe maturity levels of home telematics markets will varyin the future:BasicBasic level maturity is the status for mostinsurers that are neither utilizing SmartHome data nor incentivizing customersto provide this data. Most insurers arecurrently at this stage, relying on traditionalunderwriting statistics and techniques toprovide pricing, products, and services.SmartThe smart maturity level already includesincentives for customers to have smartdata devices in their home and campaignsto educate non-users about the immediatebenefits of securing or enhancing theirhomes. Additionally, service or hardwareproviders with innovative customer accessare probably best positioned to identifynew leads for more traditional propertyand casualty insurance products andservices.ConnectedConnected insurers for Smart Homes aremore advanced, sourcing Smart Homedata streams from the hardware providerand utilizing this data to enable enhancedunderwriting and pricing. At the same time,this information is already being analysedand used for preventive actions and possibly intervention in order to mitigate risks.12Ecosystem PlayerThe ecosystem player engages with hardware providers and has a distinct, complementary offering of services and insuranceproducts, which can be marketed togetherwith the partners in order to increase thelikelihood of retention and success in newcustomer acquisition. The ecosystem player would also have adapted their offering inservices and products to fully utilizeall available data and integrate these insights into every step of decision-making. Anecosystem player is also able to manage –and possibly orchestrate – the interactionof ecosystem incumbents in order toprovide the most beneficial service andproduct experience to their customers.This could include not only partnershipswith hardware providers, but also verticaland horizontal integration of serviceproviders to guarantee seamless and convenient experiences for policy holders andprospective customer groups.

The Insurer’s playbook on Smart Home Point of ViewAbb. 2 – Smart Home offering and data integration outlookCarHomeHealthEcosystemplayerIntegration ofcoverage for health,car, property andother insurance linespossibleData integrationConnectSmartBasicIntegration offering13

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The Insurer’s playbook on Smart Home Point of ViewWe need to consider and closely addressa number of challenges as the technologymatures and before wide-spread adoptionis achieved:Privacy and data usage:In a world where personal data is increasingly valuable, both insurers and deviceproducers need to assess ownership, disclosure policies, and overall usage practicesfor the user data they collect. Regulatoryevolution is also likely to play a role.Data security and cyber risk:As data becomes more valuable, companies will need to step-up in terms of the security of stored data and measures againstcyber-attacks. Again, both insurers andmanufacturers must be able to guaranteecustomers adequate data security andaccess security (worst-case: hackers mani pulate home steering devices and causedamage, e.g. by leaking gas, etc.).Customer education:Consumers are more than ever aware ofthe value of their personal data. Insurerswill therefore need to effectively communicate the real benefits that subscribers willget by sharing their data, explicitly statingor providing evidence that collecting thisdata will allow carriers to provide betterservice and overall higher value.Revenue model optimization:As new technologies go mainstream andpremiums look likely to decrease (at leastin the medium to long term), insurers willneed to be able to diversify their revenuesources. Prevention services and more diverse risk coverage may/could be examplesof how to better leverage telematics services and of customer behaviour information.Technology costs:New technologies are always costly, eventhough they tend to decrease in price withtime. This trend has already started forIoT devices and, as it continues, it will helpinsurers communicate to customers thelong-term benefits of investing in smartappliances and the relevant savings thatcome as a result.Customer perception:Many potential customers currentlyperceive Smart Homes as a solutionreserved for “techies” and wealthy people.Companies therefore need to design andpromote these products as simple to useand affordable.Standard-setting:Where compatibility is an issue, insurersand producers will need to work on improving compatibility at the ecosystem level.As mentioned above, a trend is already inmotion with the creation of hubs capable of“speaking many languages”. We can expectthis process to accelerate as more techgiants enter the market.15

Monitor DeloitteDeloitte knowhow and selectedprojects related toSmart HomesHexScore “Home”A key Deloitte reference for home telematics is HexScore ”Home”, a product currentlybeing developed and in use in the UnitedKingdom. HexScore applies data miningand analytics techniques to provide newinsights to insurers via Deloitte’s big dataplatform. The data is aggregated, enhancedwith other third party information, such asweather and crime statistics databases,16and processed using a sophisticatedunderwriting algorithm to receive analyticalinsights on the risk profile of certain buildings. Ultimately, HexScore delivers insightsin an effort to generate new products andpricing schemes for insurers active in theproperty and casualty segment. The infographic below outlines the current processfor HexScore’s home applications.

The Insurer’s playbook on Smart Home Point of ViewAbb. 3 - HexScore Home DiagramCurrent underwriting: how toassess the risk of a new client?What is exposure to pastweather related perils?Office development;10 years of historyWhat does the sitelook like?Data available: onlyclaims experiencepast 3 years. And other difficult toanswer questions .Data enrichment,transformation and risk scoringWeather sensors (winds,floods, lightning, etc.)Spatial context (proximity to seaor rivers, altitude, surrounding,buildings and population, etc.). and the insurer’sown claims dataCommercial propertyinsurance insightsRisk assessment onweather-related hazardsand impact on the areaPast history of weather eventimpact on neighbouringbuildingsDistance tosea / riversAltitude17

Monitor DeloittePredictive air-qualityAdditionally, the Deloitte Analytics Institutedeveloped a command centre and information dashboard for the City of Londonas part of a smart city initiative, which assessed and analysed air quality across thecity during certain times of the day.Within this initiative, Deloitte was able toprovide relevant insights using analyticsinstruments to derive insights on healthimplications for London’s inhabitants.152The system was able to generate recommendations for citizens, e.g. whether itwould recommend certain open-air leisureareas based on air quality. This recommendation and analytics process could alsobe applied in-home air assessment, as isalready taking place via companies such asCanary or BNP Paribas Cardif, who have developed a system to collect data on indoorair quality.364798Source: Deloitte Analytics Institute181110

The Insurer’s playbook on Smart Home Point of ViewSelected Smart Homeuse cases for insurersMature Market ExamplesAir qualityCollection of air quality data within thehouse, as is already done by e.g. Withings.Additional services from the insurer couldinclude proactive health coaching, emergency intervention services (when CO2 /COreaches dangerous levels). These serviceswould increase interaction and ideally giveinsurers the opportunity to combine theseservices with an insurance product.Mould detectionData from humidity and heat sensors canbe aggregated and analysed to predictmould growth inside houses. Besides thereduction in property value, mould alsopresents health implications, which canhave strong negative long-term impacts onresidents.Insurers could offer coaching or preventive/mitigating services to remove mould fromhomes, when it is only a minor issue. Also,insurers could provide automatic ventilation systems for homeowners that helpprevent mould from forming.19

Monitor DeloitteWater sensorsWater sensors could be used to detect bacteria, such as Legionella in houses, whichalso have major health impacts for insurers. These bacteria bring long and costlydiseases with them and should thereforebe tested for on a regular basis. However,sensors in the pipes could significantlyimprove testing accuracy and could evenrun water when pipes detect a risk of bacteria levels that are dangerous for humans.Insurers could use this to not only preventthe disease from breaking out, but also toincrease convenience for customers.Home and health monitoringIn elder care there are several applicationsthat could easily combine home monitoring with health monitoring. An examplecould be using smart slipper technologyto detect falling of older individuals (2.5melderly people are treated for falling in UShospitals each year), to provide servicesor initiate contact with relatives or even toprovide medical intervention on-site. Theseinterventions can significantly reduce costs,while also improving the state-of-mind ofcaretakers who are unable to attend to theindividual at all times.20Immature Market ExamplesAnti-theft tagsGPS-location sensors could be attachedto certain valuable items. In case of theftor robbery, these items could be tracedmore easily. This may be more relevant inimmature markets as police services andfollow-up in these countries may not beas proficient and exhaustive. Anti-thefttags could significantly reduce costs fornew products and insurers could providethem along with services that facilitate theretrieval of such items.Natural disaster warningsEven though natural disasters cause asmuch damage in developed markets,there is a distinct opportunity to supportindividuals in less-developed countries withrisk-mitigating services. In these countries,it is also in the public interest to mitigatethe impact of earthquakes. Thus in-houseinteraction with individuals and improvedsensoring could be used to sell disastermi

The state of the Smart Home OEM market & stakeholder involvement The global Smart Home market has been estimated at around 20 billion and is expected to almost triple in size by 2020 1. There are two main components to Smart Home products: the smart appliance itself and the software that controls it. T