WHY THIS MATTERS IN BRIEF
As Connected Home devices become more capable and popular they will give insurers new insights into previously private user behaviours, and fundamentally change how insurance is sold.
Connected home devices, that range from Alexa to smart fire alarms, lighting, security systems, thermostats, TV’s and beyond, are starting to spring up everywhere and their adoption is accelerating. As consumers bring more of these devices into their homes these same devices give companies more insights than ever into consumers previously private behaviours, helping insurers fine tune premiums, but also raising privacy concerns. These same devices though will also help bring about a paradigm shift in the insurance industry’s business model, helping insurers proactively spot and then prevent problems, such as burst water pipes, and ergo reduce the cost of claims, before they happen. It was my privilege to be interviewed last week for CNBC on the topic and you can read the press release below, or online here.
JUNE 13 2018 (CNBC) – “Amazon home insurance could be on the horizon, but experts are skeptical of benefit to consumers.”
- Amazon has reportedly discussed offering home insurance.
- Home insurance from Amazon would potentially complement their growing line of smart home devices.
- Experts are skeptical of benefits, but excited about the future of the insurance industry
Amazon may be expanding its insurance game: After working on a project to disrupt health insurance, the tech giant is considering offering home insurance as a complement to its growing line of smart home devices powered by Alexa, according to tech news website The Information.
Smart homes are becoming more common in general. At the end of 2016, more than half of all homes in the United States were smart, a total of 21.8 million households according to a report by Berg Insights. Amazon is a front-runner in the smart home space.
But when it comes to home insurance, Amazon may have a way to go before being able to truly disrupt and change the industry for the better.
A complicated industry
“Insurance is not something you put in a box and ship,” said Lynne McChristian, director of disaster response and Florida representative for the Insurance Information Institute. “It’s one of the most regulated industries in the U.S.”
If Amazon were to get into the insurance business, they’d have to work with regulators in every state. Different states have different rules when it comes to home insurance, which is why most insurance companies start in one state and master that market before expanding.
Another barrier to entry in insurance is financial backing.
“Insurance is one of the businesses where you have to have the money up front to pay the anticipated claims,” McChristian said. “You just don’t start that type of business without looking at where the money is going to come from.”
This would constitute a large shift in business model for the tech giant, industry observers said.
Amazon officials did not yet respond to an e-mail request for comment.
A cut to costs?
One potential selling point for Amazon home insurance would be decreased cost. The company already markets its smart home devices as time and money-savers; to really disrupt the insurance industry, it could undercut other insurance companies on price.
A report from the Insurance Information Institute showed that in 2016, more than 30 percent of homeowners considered homeowner’s insurance a financial burden. For homeowners in many states, average monthly premiums are well over $1,000.
But not everyone thinks that price reduction would be a large part of an Amazon home insurance play.
“I’d be skeptical that there are many benefits for homeowners that they’d not find elsewhere,” Michelle Megna, managing editor of Insurance.com, wrote in an e-mail. “It seems to me that the home security discount you’d get from having an Amazon home monitoring device would not be any different from what you’d get from any other home insurance company for having a security system in place.”
Coming up short on costliest claims
While Amazon may be a leader in smart home devices, the things that the company’s products accomplish are not suited to preventing — or necessarily detecting — the things that cause the most costly insurance claims.
Data from the Insurance Information Institute showed that from 2012 to 2016, the most costly claims were related to fire and lightning, bodily injury and other property damage, water damage and freezing, and wind and hail.
Other property damage, theft and fraud — which Amazon’s smart home products are well equipped to detect and monitor — were much less costly to homeowners.
In addition, the report showed that the most frequently submitted claims for homeowners were weather related; wind and hail, water damage and freezing and all other property damage were the top three most frequent claims.
An abundance of data
What Amazon’s connected home devices do provide —and is of value to insurers — is a wealth of consumer data.
“They offer insurers new insights into the users in the house and their behaviors,” said Matthew Griffin, founder and CEO of the 311 Institute in London. “Insurers will be able to aggregate that data together to get better insights into the behaviors and ‘patterns’ of individual neighborhoods.”
In the future, it may be possible that connected home devices and the data they provide allow insurers to move from a reactive model to a proactive one, meaning that they could detect problems before they arise and fix them. If insurers could avoid risk, that would constitute a paradigm shift in their capability and business model.
What to watch for
What Amazon potentially has going for it in the home insurance space is name recognition, lots of consumer data and the ability to analyze it effectively. If it did have a home insurance offering, it would be very convenient for the 49 percent of American consumers that already have an Amazon Prime premium membership.
But with so few details, it’s hard to judge whether there would be a benefit to Amazon or to consumers. Experts say it seems unlikely that Amazon would foray into home insurance without a partner that knows the space better.
“We’ll have to watch and see,” said Megna at Insurance.com. “It could be that this fizzles out, mirroring Google’s experiment with selling car insurance.”
While home insurance companies aren’t yet worried about potential Amazon competition, the company’s announcement does show that the insurance industry is changing.
“Disruption is happening right now,” said McChristian at the Insurance Information Institute. “There are unknowns, and that makes it exciting to be a part of something that has some element of reinvention.”