Usage-based insurance (UBI) is one of the more interesting insurance trends to emerge in the past two decades. UBI is already prevalent in the auto insurance industry, where companies have been using telematics that allow providers to offer drivers lower premiums in exchange for safer driving habits. For their part, many drivers have seen the advantage of these systems, especially given the rising cost of auto insurance.
But can telematics work effectively outside of the auto insurance industry? Home telematics company Roost, along with its new partner Erie Insurance, appear to believe it can make usage-based insurance work for homeowners insurance. The two companies recently announced a partnership in which Erie Insurance will use Roost's home telematics in two areas: water leaks and freeze detection.
Erie Insurance plans to test customer engagement with Roost's Smart Water Leak and Freeze Detector product, which can detect leaks, air moisture and temperature. The product connects to a user's home Wi-Fi network and receives data regularly on measured conditions. If a problem arises, such as a leak or a lower air temperature combined with increased moisture, the device can trigger an alert to the user's associated app. As a result, the product can help catch leaks before they cause significant damage. Erie Insurance is hoping to decrease or prevent water damage claims using this system.
For consumers, a reduction in risks typically means one thing: lower premiums. For insurance companies, a lower-risk customer can easily be offered a lower premium. Erie Insurance and the home insurance markets as a whole could have a potentially game-changing new feature on their hands. Combining currently available smart sensor technology with homeowners insurance risk assessments could ultimately mean a win-win situation for everyone involved.
Telematics in Homeowners Insurance: Future Potential
The technology to apply telematics to the homeowners insurance market already exists, which could make it easier to implement. Homeowners insurance companies would require little personal investment and would not need to create new technology to offer consumers.
Smart detectors for water leaks and freezes have been on the market for several years now. Well-known companies such as Honeywell and D-Link now sell Wi-Fi-enabled and Bluetooth-enabled smart devices that can detect leaks and predict potential freeze issues. Home security companies like ADT, Frontpoint and Vivint all include such sensors as part of their home security packages.
To that end, homeowners insurance companies may want to further look to the home security market to offer insurance premium savings for their customers. Already, many consumers who have home security systems installed can receive premium discounts. After all, loss due to theft is one of the primary concerns for both homeowners insurance providers and homeowners alike. Home security companies are increasingly including different types of sensors in their product mixture, so partnerships between home security companies and home insurance companies may be a good combination.
The telematics available easily stretch beyond just leak detection. Homeowners can now install smart smoke and heat detectors, smart security cameras, smart locks and more. All of these are geared toward creating a safer home environment, and all can be used with cloud-based systems and shared with a homeowners insurance company to help create a holistic risk profile.
Privacy Concerns Likely to Be an Issue in Home Telematics
As with the telematics used by car insurance companies, homeowners insurance companies are also likely to come up against major concerns related to privacy and security. Many have questioned the privacy concerns over monitoring customers using GPS-enabled devices that monitor speed and even location. Insurance companies can expect those types of complaints to intensify when it comes to telematics in the home, an arguably more sensitive and private area for consumers.
Homeowners, already cautious about giving up privacy, may be very slow to accept cost savings in return for giving their insurance companies access to additional monitoring equipment. And insurance companies will need to determine whether the simple presence of smart home sensors is enough to determine risk.
Nevertheless, the partnership between Roost and Erie Insurance is one to watch. Should Erie Insurance find enough buy-in from its own customers on water and leak sensors, it won't be long before many others follow suit.
Maxime Rieman is Product Manager at ValuePenguin. Educating and assisting shoppers about financial products has been Rieman's focus, which led her to joining ValuePenguin, a consumer research and advice company based in New York. Previously, she was product marketing director at CoverWallet and launched the personal insurance team at NerdWallet.
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