Smart Homes, the dynamics of the market and the relevance of partnerships
05 Dec 2016
Smart homes represent an ecosystem of players across industries where common interests are shared. The ability of an insurer, an energy provider, a telco, security company or device manufacturer to better understand their clients through their data and subsequently create custom solutions will be key to the success of smart homes. The basis for the success of smart homes will be to persuade customers to adopt smart technology and share their data. Customers must trust that providing their data will be rewarded by delivering better value through an understanding of their behaviours and lifestyle. The translation of data into meaningful information and insights is key.
For the insurance industry, value creation will come from matching the underwriter perspective with the customer perspective and partnering with others in the ecosystem to explore avenues for revenue creation beyond premiums.
One of the biggest challenges for smart home insurance is respecting the sanctuary of the client’s own home while generating enough meaningful data. There are also issues of data security, ownership and sharing. The keywords are trust, transparency and context: customers may be willing to share data with companies they trust, for agreed (transparent) purposes only. They will be less likely to want to share data related to personal behaviour - unless they gain from doing so, as Facebook and other entertainment platforms demonstrate. Customers will happily share data in the context of risk reduction, but not if insurers only use the data to check for fraudulent claims.
Changes in technology
Rapid changes in technology raise the question of how smart home products will be maintained, by whom and at what cost? Good ecosystems will build in backward compatibility to devices already installed. Over the air updates are already really important, but are not without risk. From the insurance perspective it will be important to work with companies that are designing device agnostic solutions. Devices manufacturers and energy/telcos are partnering to adopt the business model currently used for smartphones. Clients will be able to get their devices for free if they sign 2 or 3 years contract with the energy provider or telco. The devices are subsidised by the energy/broadband tariff.
There are some major issues surrounding responsibility in the connected home. To move forward there will have to be basic levels of agreement between all the participants within ecosystems (i.e. the insurer, consumer, device manufacturer, outgoing service provider) as well as governments and institutions. They will also have to build models that allow for partial responsibility in liability disputes.
Home automation security
There are two approaches to maintaining automation security, the service model and the DIY model. The DIY model would suit about 50% of market customers, but there are still lot of potential problems. The subscription service model involves less risk for the customer and places responsibility on the provider to maintain the reliability and security of the network
Growth in the future
Renewing services to create future business is vital: eg as more customers generate power themselves revenue from energy sales is sinking. So energy companies are investing billions of euros to create new energy service offerings. The challenge for all participants in the smart home ecosystem, including insurers, is to create value that customers are willing to pay for.
"Translation of data into meaningful information and service is crucial in smart homes"
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Summary by David M. Taylor. This article is based on the "Risk Talk on Smart Homes" which took place on 21 November 2016 at the Swiss Re Centre for Global Dialogue.