Smart home telematics – reducing underwriting costs post-Covid

 

By Craig Foster, CEO LeakBot

‘Uncertainty is the only certainty’, goes the new truism in boardrooms the world over. In times like these, where we can’t rely on what’s happening today as a reliable predictor of what might happen tomorrow, it’s likely that this will become something of a new mantra for the global insurance industry too. The coronavirus crisis has impacted both insurers and policyholders, creating doubt and disruption across a sector that is usually relied upon for its stability and security. While post-pandemic recovery for the industry is more than achievable in the long term, there are signs that the coronavirus could prove costly in the short term.

In April, forecasting figures released by the global insurance syndicate Lloyd’s of London predicted record losses for the worldwide insurance industry as a result of the pandemic. Total losses could exceed $200 billion, with as much as $110 billion of that amount thought to be from global underwriting losses in 2020 alone. Worldwide, insurers are likely to still be paying out on a very wide range of policies to support both businesses and consumers who are affected by the pandemic for many months – potentially even years – to come.

In this context, it is important for insurers to review their business practices carefully in an effort to identify propositions that may enable them to better navigate the coming uncertainty. Fortunately, for those in the personal lines space, the rise of telematics-based insurance cover could provide them with a valuable opportunity to manage short-term losses and mitigate long-term risk.

Protecting properties, counting costs

The Covid-19 pandemic has produced a range of new challenges for personal lines property and casualty insurers and their policyholders. The crisis has broken down the discrete barriers between the different aspects of people’s ordinary lives. Many now live, work and relax all within the same location – usually the home. Where people are not working remotely, they are often not working at all. The upshot is that millions of people who would not ordinarily spend the overwhelming majority of their time inside domestic properties are doing just that – working, educating children, shopping, and sheltering their families from the virus.

What this means is that protecting their property from disaster has taken on an even greater importance. If a person’s home was already their castle before the pandemic, there is a high likelihood that they will now want to consider it their fortress. That is good news for personal lines insurers, as policies are likely to increase as a result. But with policy costs set to rise to offset underwriting losses – and with the pandemic potentially tightening people’s purse strings – there is a strong chance that we will also see a significant increase in customer scrutiny of policies and the cost-benefit of any potential cover.

A smarter approach

As a result, a new dawn for telematics propositions could be on the horizon for personal lines insurers and policyholders alike. Already common in the vehicle insurance space, smart telematics will begin to seem an increasingly attractive option for both insurer and customer in the home insurance space. What may once have been seen as a ‘nice to have’ will fast become a necessity.

From a home insurer’s perspective, the opportunities presented by a telematics-based approach will start to seem too good to miss. Telematics products can drive significant value and deliver excellent underwriting results to insurers by allowing them to gain much deeper, more granular insights into customers and the level of risk to be covered for each individual policy. Where insurers have conventionally operated via a reactive model – generally responding to incidents after the fact and pricing risk and premiums based on the average homeowner – telematics products can enable a much more proactive and personalised approach, with customer data harnessed to deliver better, more bespoke policies.

Devices such as leak detectors, cameras and other smart home technology powered by IoT technology provide further value for insurers through proactive monitoring that allows them to pre-empt the problems that drive higher-value claims. According to data collected by active LeakBot devices in domestic properties, hidden water leaks are a problem for around 43% of British homes, while escape of water is consistently one of the biggest drivers of home insurance costs and claims globally. A small, hidden leak left undetected soon develops and could cause significant damage and huge costs. Spotted early enough by a smart home telematics device, prospective costs and future risk can both be substantially mitigated.

Driving customer satisfaction

The telematics-based approach can help diversified insurers to offset the financial burden brought on across their books as a result of the Covid-19 pandemic. It can also serve as a significant point of difference for customers in a market so often driven by price. By encouraging policyholders to demonstrate that they are a responsible customer, insurers can give them much greater control over the cost of their own premiums. This is particularly important in personal lines markets, such as home insurance – after all, people like to feel in charge of their own property and its contents.

Ultimately, it is the insurer who continues to offer cost-effective cover post-Covid that will be seen as the surest bet by customers. Insurers can achieve this by leveraging telematics tools that not only help them to better price and mitigate risk across their portfolios, but also empower policyholders to take a much greater stake in their own cover, which could deliver further savings on premiums in the long run. For insurers and customers alike, reducing costs will always be an attractive prospect –while the pandemic may well prove to be a pricey affair for personal lines insurers, there are available smart solutions that can help to reduce the overall impact.