Insurers are focusing on creating a more rounded approach to providing insurance. Traditionally, they have mainly provided assistance from the claims side. Nowadays, they are establishing alliances with smart home vendors to help prevent incidents from happening in the first place. However, many insurance companies are entering the smart home space without defining a clear strategy, keeping important issues such as interoperability low on their list of priorities as they seek to take advantage of the current momentum around smart homes. The buzz is clouding their long-term vision, so that they are mostly looking at the short term with a low-risk go-to-market approach. This is allowing them to innovate, but not to the level that will revolutionize their business and ignite sales.
Digital disruption in the home insurance industry may take longer than expected
The smart home is changing the way home insurance is delivered. Whether through product subsidies or premium discounts, insurers are focused on expanding their current service portfolio. They want to push the adoption of smart home devices and services in an attempt to create a closer relationship with their customers by providing a more comprehensive service. Insurance companies want to change how they engage with customers. Instead of taking a reactive approach whereby they wait for claims, they want to provide regular assistance to customers and prevent incidents from happening, through the use of smart tech.
Partnering is the main strategy insurers have chosen to push this initiative forward. However, many insurers are rushing to announce partnerships with vendors and service providers without a serious commitment to the cause. They are rushing because with all the hype surrounding the smart home they think it is the right thing to do. IoT is seen as the way to innovate, get closer to customers, and gain competitive differentiation in a highly commoditized industry. However, insurers are developing smart home business models based on miniscule premium discounts, single product subsides, and a relatively light approach to incident and risk management services, which indicates their lack of conviction that IoT will actually have a significant impact on the insurance industry in the near future. They are testing the waters until concrete proof emerges that the smart home initiative will work for them.
Insurers' rush to partner with smart home vendors has surfaced the issue of interoperability. Consumers are not necessarily brand-driven when deploying monitoring solutions that prevent damages from water leaks and fires. They are, however, brand-driven when choosing solutions for preventing thefts and break-ins (e.g. smart locks) because security solutions have a direct impact on their safety. The relatively low interest consumers have in brands related to leak detectors, water shut-off valves, and smoke alarms, for example, has led some insurers to look beyond market participants with well-known brands to partner with smart home vendors that have local footprints and no solid partner ecosystem in place, thus offering limited interoperability with third-party solutions. In the short run, these types of partners can provide the basic elements to create a strategy around the smart home, but in the long run they will have to evolve, as consumers will naturally expect interoperability among connected devices. Betting on the wrong horse might cause customer frustration in the future, and probably even churn.
The idea of a new approach to home insurance emerging through smart tech is not entirely apparent from observing market participants, as they continue to approach the issue with caution. Insurers have started implementing different initiatives around the smart home, but show a lack of diligence when it comes to choosing who they partner with. This means that the digital disruption in the home insurance industry will take longer than expected. However, this will change when traditional insurance companies start to feel the threat posed by insurtech companies more keenly.
Smart Home: Insurance Industry Business Models,TE0003-000978 (January 2017)
Mariana Zamoszczyk, Senior Analyst, Consumer Services