Smart home: Potential for the insurance industry

The smart-home market can certainly not yet be described as a mass market. One reason for that is the lack of uniform technology and communication standards, with different providers of equipment, services, networks and transmission protocols each having their own systems. For example, with six different transmission protocols in use, many smart devices are unable to communicate with each other. Another reason is the fact that there has been little marketing pointing out the advantages and benefits of networked homes to consumers. Google and Amazon could now change all that with their Home and Echo intelligent assistants (IAs). The voice-controlled multimedia loudspeakers can control smart household appliances, devices and perform a myriad of functions designed at making life easier and more connected.

The technology behind the IAs is designed to continuously improve its own performance. It gathers and links user data, identifies behavioural patterns and makes adjustments to meet users' expectations better. To do this, it not only takes account of information on the individual user, but also draws on all available data. In the case of Google, that includes search engine activity, communications and calendar content, and Android data if the user uses a pixel smartphone. Amazon links and evaluates, for example, consumption habits and location information to increasingly adapt to the user.

And the learning isn't confined to the underlying technology – appliances can learn too. Thermostats produced by Nest, for example, continually adapt their functions to the user's preferences.

American Modern and HSB are running the LivingWise project to enable them to better measure and evaluate the risks and potential that the networked home will bring. A building has been equipped with networked-home technology so that loss scenarios can be modelled realistically. For example, a sensor can detect water leaking from a pipe, which generally not only involves isolated damage to brickwork, but also affects furniture and fixtures. Such complex losses can be modelled realistically in the LivingWise test environment. The way in which data in smart homes can be used to indicate the cause and extent of damage (from fire, windstorm, burglary, water, etc.) is also being analysed. All of this information can be used in policy generation or provided to insurers wishing to train their brokers.

Smart-home technology creates new – insurable – risks. Sensors, alarm systems and control and communications equipment can incur damage that policies can cover. Appropriate covers are also needed for damage to the mains electricity supply caused by lightning or short circuits. HSB, for example, offers its Home Systems Protection (HSP) household goods cover for appliances and other (networked) equipment, and MyHomeWorks™, which combines HSP with smart home-management tools such as a power-saving service, provides insureds with genuine added value.

As they are connected to the internet, smart homes are also exposed to cyber risks from attacks and manipulation. This creates an opportunity for specialised and liability insurers to offer suitable products. HSB's product range includes Home Cyber Protection™, which provides cover for attacks on smart homes.

Smart sensors enable loss events resulting from fire or burglary to be detected at an early stage and rapidly confined. Ideally, insureds would be able to remedy the cause of damage themselves. If, for example, they used a smart device to stop a leak by closing a water valve, they could significantly limit consequential damage. Insurers could position themselves as "security partners" offering their customers lower premiums if they used appropriate smart-home technology or discounts to the purchase of devices.

The IAs from Google and Amazon could make the smart-home market really take off, which would increase demand for insurances and services relating to the networked home. Thanks to the research it has carried out, the solutions it already has available and a dedicated steering group, Munich Re has considerable expertise in the smart home area. We would be pleased to help you identify potential – and exploit it efficiently and effectively.