Is Your Connected Home Smart Enough to Cut Your Insurance Costs?

Google Home and Amazon Echo: voice-activated assistants making life easier and cozier for families everywhere (ahem, say those heart-warming commercials with fathers carrying sleeping children into a house smart enough to unlock doors and dim lights, not-so-subtly implying that smart home devices let you focus on ‘what really matters’). This is the stuff advertising campaigns are made of, especially during the holiday season.

Voice-activated assistants, smart phones and laptops are already part of a connected lifestyle, but they’re not nearly all of it. Everyday items like refrigerators, thermostats, baby monitors, alarms, and even door locks are now available in smart—read, internet-connected—versions. Ladies and gentlemen, this is the Internet of Things, or IoT.

But what’s it really like to own these and other connected home devices? How safe are they, how much security do they provide, and how do they fit into homeowners and renters insurance policies?

Though it’s less attention-grabbing than sappy commercials, insurance is an important piece of the smart home puzzle. The insurance industry is jumping on the connected home bandwagon because these devices make people more insurable, writes Market Watch. But coverage is still in the early days.

In fact, many insurance companies are offering customers free smart home devices or subsidizing the cost, or they are providing better terms and conditions on insurance policies covering connected devices.

New research shows that insurance pilot programs for connected homes grew from 9 to 22 percent from 2014 to 2015 and the numbers are only expected to increase as 2016 comes to a close. In the U.S., insurers include connected home devices as parts of these special programs, but so far there isn’t an insurance company completely devoted to offering connected homeowners (or renters) insurance (meaning you can’t yet go out and purchase an insurance policy that will cover your connected home across the board and in every case with every device).

Not so abroad: Neos describes itself as the first connected home insurance service in the United Kingdom. It’s set to launch soon, with an eye toward an eventual expansion into North America. As Neos’ CEO and co-founder Matt Poll told Insurance Business Magazine, customers don’t want to have a claim (as it would mean something bad has happened on or to their property, nor do insurers (so to increase their profitability). “So if we can use smart technology to put the customers in control and alert [the insurers] if there is a problem, then hopefully they are happy and hopefully our insurer partners are happy,” Poll said.

A sturdy 45 percent of all insurers believe that connected devices will drive revenue in their industry in the next few years, and at least two out of every five insurance companies have already invested in a connected device program, writes Fortune. But so far on the consumer end, connected devices are still an early-adopter’s game. The consumer market as a whole hasn’t quite caught on to the trend, despite the fact that these products having been on the market for about four years.

They’re Pricey

Connected home technology is still quite expensive; a connected lock system, for instance, can cost about $200 or more, and they’re still not perfect.

They Don’t Always Work: A Testimonial

We spoke with a Boston-area homeowner, Shira, who tried a smart locking system in her home last summer but ultimately abandoned the project. “The product would have been great if it had worked perfectly because I often rent my home out on Airbnb when I’m abroad and it could have saved me a lot of hassle,” Shira told us. “But some guests didn’t have the right kind of phone, and my door is old so the lock didn’t always match right. Also, it’s a problem if you come home and your phone battery is dead. Not only can you not get in, but you can’t call anyone to help, either.” Shira said she might try again when the products are more-road tested and some of the downsides, like what to do if your phone battery dies, are addressed.

Connected devices certainly save insurance companies money, which is why they’re so keen to encourage their customers to use them. A connected smoke detector that can automatically alert the fire department could save an insurance company $35,000 in average home insurance payouts, writes Insurance Business Magazine.

And automated light and energy management devices and fire and water monitors help to prevent homeowner losses, a State Farm representative told Market Watch, which is why State Farm offers insurance discounts for these devices and even pays for the installation of certain security services.

And spokespeople representing insurance companies seem to believe connected home devices will save their customers money in much the same way insurance companies like to say telematics devices (plug-ins that monitor driving behavior) will save their customers money. Insurers are building up their connected home programs and adding discounts, so whether or not an average consumer can save insurance money using these devices still depends on what type of products (and which brands) they use and what kind of programs their insurer offers. Fortune detailed one such program: American Family’s program with Ring, a connected doorbell provider, offers customers a policy discount for purchasing and using the device and even promises to reimburse the deductible if anyone breaks in.

Hacking is top of mind when it comes to connected devices. Many products aren’t very sophisticated when it comes to security, and there are countless recorded cases which show their vulnerability, like the spree of hacked baby monitors a few years ago.

1. Not only are connected devices themselves vulnerable to hacking, so is the personal information of the people who use them.
2. Break-ins also happen virtually with connected homes, meaning prosecution and loss recovery becomes more complicated – and more unlikely. Think: the difference between catching and prosecuting an identity thief and catching and prosecuting a purse snatcher – the complication is orders of magnitude higher in the former case.
3. Perhaps even more troubling: if a security breach or hack does occur, not all insurance companies have clear guidelines about what’s covered or who (insurer or customer) is responsible for what. Insurance insiders agree that the industry hasn’t caught up to the potential vulnerabilities of these devices, especially since most policies still contain pre-connected home language that doesn’t address new technologies. (We’ve written about this issue for connected vehicles.)    

Though cyber liability insurance currently exists only for people and companies with lots of important data to protect, insiders say there is a push to include coverage for hacking and data breaches within personal homeowners (and renters) policies.

1. Another more easily overlooked downside is insurer access to information. On their Connected Care page State Farm encourages families to “leverage sensors” to make sure each member is sticking to their usual routine, to monitor medication intake via medication sensors, and to “give help from far away” with thermostat, light, and lock controls. All of which can be very helpful, no doubt, but all of which also might skew a little too “Big Brother” for some people.
2. Finally, just as we’ve seen with the evolution of telematics devices in cars, insurer access to our behaviors in our homes could eventually end up costing us: leave the stove on? Surcharge. Forget to lock your doors? Surcharge. Allow too many houseguests? You get the picture.

The important thing, as will all technology that offers outsiders more access to our inner lives, is to stay involved and curious: understand where your information is going, who can see what, how it will be used, and how protected (or vulnerable) you are and ensure you have the level of privacy and protections you require each step of the way.

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