Reprinted with permission from the Property Insurance Report by Risk Information
Home insurers are splashing discount offers for internet-connected devices across their websites to entice shoppers, but they aren’t realizing their potential as a tool for pricing and underwriting, according to an analysis of leading carrier websites from consulting firm Corporate Insight.
Eventually, data from the Internet of Things (IoT) – such as burglar alarms, smart thermostats, water leak sensors and other devices – may provide insights that draw a picture of a homeowner’s risk, the way telematics does for drivers. But it hasn’t happened yet, at least in part because insurers tend to conflate the various technologies that mitigate against different perils into the catch-all “connected home” designation. In addition, few consumers are claiming discounts, and the majority of insurers don’t offer the devices or discounts during the online quote process, which implies a lack of interest in their use for underwriting or rating.
Carriers are “still mixing home security with protective devices,” said Justin Suter, Corporate Insight insurance research manager. “They call it a home security discount, or protective-device discount. And a protective device could mean a burglar alarm, or it could be a leak-detection device.”
Of the 17 carriers reviewed by Corporate Insight, all but one carrier (Liberty Mutual) offer a premium discount for policyholders with connected devices. Ten of the 17 insurers offer discounted pricing for smart-home devices through partnerships with third-party device manufacturers.
“Despite the existence of these offers, few insurers effectively incentivize policyholders to implement smart-home technology by properly promoting available discounted rates on connected devices,” according to the report.
In the last four years, carriers have made major advancements in dedicating space and resources to smart-home devices on their public websites, Suter said, though there is still room for improvement.
This year, 13 of the 17 insurance company websites (76%) analyzed by Corporate Insight promoted premium discounts for smart devices on their home insurance overview page, up from 57% in 2021. Fourteen of the 17 websites (82%) studied this year featured a dedicated page for connected home devices, compared to 36% in 2021.
“A lot of those pages are really well-designed,” he said. “They’ll have explanatory videos about ‘Why is this important, how this benefits you, how this benefits us as your insurance company.’ They’re doing a good job on the public site.”
But the efforts often fall short during the quoting process or on website pages that only policyholders can access to find discounts for devices they already have or would consider adding.
Also, only six of the companies monitored by Corporate Insight send follow-up emails to existing policyholders promoting information about smart-home devices. They are Allstate, Amica, Erie, Liberty Mutual, Nationwide and USAA.
Despite the omnipresence of smart-home devices on homeowners insurance websites, few consumers are claiming them for a discount. One factor could be confusion about what, exactly, counts as a smart-home device that could merit an insurance discount.
Just 7% of consumers surveyed by Corporate Insight in May 2024 reported that they received a connected- or smart-home discount.
With so many competing brands of smart-home devices, some consumers may not know where to start. A central technology platform that ties together water-, fire- and theft-protection devices into a single system has yet to emerge as a familiar household name, similar to the way many consumers choose Apple or Google and stick with it for all their entertainment and communication devices.
The closest bridge between multiple devices is the Notion monitoring system, which allows control of smoke, water and security systems through a phone app. Startup insurers Hippo and Lemonade offer the system, but it has yet to be picked up by any top 10 carriers.
Hippo emphasized smart devices and proactive home maintenance as a differentiator, but its profitability challenges may illustrate the limits of connected home technology in a business vulnerable to hurricanes, wildfires and convective storms. Hippo offers policyholders a kit that includes water sensors, smoke detectors, a door entry sensor and a security camera. It does not include an automatic water shutoff valve, which has been proven as one of the most powerful devices for preventing losses.
The carrier has taken steps to reduce costs and diversify its exposure beyond its home state of Texas, where policyholders may have used their new wireless security cameras to watch hailstorms batter their houses and Hippo’s bottom line, all while earning a discount.
Carriers use a mix of strategies for determining connected-home discounts. The majority offer price breaks on the device itself for certain brands. But many offer premium discounts for any device that fits a certain category, such as leak detection. They also have mostly ended programs that sent free devices to customers.
“I think that shift is due to the proliferation of IoT devices,” Suter said. “There’s so many more out there … carriers don’t want to offer them for free.”
Insurers may also have become wary of sending out devices that too many consumers never plug in or activate, he added.
One notable exception is the Ting device made by Whisker Labs. It plugs into a wall outlet to detect fire hazards in home electrical systems. Carriers with Ting partnerships provide those for free to policyholders, and Ting is quickly growing, riding momentum from high-profile partnerships with State Farm, Pure and several other carriers.
Automatic water shutoff valves are another exception to many carriers’ nonchalant attitude toward smart devices. Most carriers advertise a discount for them, but now many require rather than just recommend the devices for high-value homes or for those with previous interior water claims. (PIR 04/22/24) Automatic shutoff valves are proven to reduce losses by stopping the flow of water if the device detects unusual volumes flowing through the main pipe to the house. But the shutoff valves require professional installation, which has proven to be a barrier for homeowner adoption.
None of the 17 websites or quote tools reviewed by Consumer Insight mentioned that the carrier requires water shutoff valves to be eligible for coverage.
Perhaps most indicative of the low priority insurers give to smart devices as a segmentation tool: few carriers offer the devices or discounts during the quoting process or allow for existing policyholders to enroll devices online without calling.
“It’s not coming from their underwriting teams, like ‘we need to get all of our book on this because it’ll be a huge savings for us,’” Suter said. “It’s still really incumbent on the policyholder.”
The lack of attention to home mitigation devices contrasts sharply with auto insurance quote processes, which almost try to persuade shoppers to sign up for telematics programs that have proven to be a powerful pricing segmentation tool.
Twelve of the 14 carriers (93%) with telematics programs analyzed by Corporate Insight this year encourage shoppers to enroll during the online quoting process.
Only seven of the 17 (41%) carriers monitored by Corporate Insight mention connected-home discounts in the quoting process.
Corporate Insight did not rank the carriers based on their connected-home programs, but of the carriers studied, Amica was a standout. In addition to proactive outreach and detailed informational web pages on both the public and policyholder sections of its site, the chatbot answered questions about connected devices. Still, it did not offer a dedicated step in the quote flow for reporting connected devices.
Farmers’ online quote process offered one of the most prominent steps to apply for a connected-device discount, but even it suffered from the industry-wide lack of clarity for what counts as a protective or connected device. Shoppers can click a bubble to select “whole house water-leak detection” for a discount, which is self-explanatory, but there is also a “connected home” option that lacks a definition.
Most carriers require existing policyholders to call customer service to earn discounts. USAA was the only carrier to allow existing policyholders to sign up for the discount on its website, however getting there requires a convoluted web journey. Policyholders are directed back to the public portion of the site to enroll.
“As confusing as it is,” Suter said, “they’re still ahead of the curve.”