The Internet of Things (IoT) and its impact in insurance continues to be a hot topic of discussion. In a recent study, my colleague, Dan Davis, Director of IoT and Emerging Markets, shares research focused on the impact of water leak prevention systems on non-weather residential water damage claims. The study looked at frequency and severity changes in properties that have these devices installed, compared against a control group of properties in similar geo blocks. The results of the study show evidence that there is a positive correlation between the presence of these systems with fewer and lower severity of claims. Specifically, the study reveals that water leak detection devices can help reduce the number of water leak claims by as much as 96%, and claim severity was reduced by as much as 72%. Although that study is focused on residential properties, we believe these insights will benefit commercial carriers and their customers as well.

We’re now into the spring season but let’s think back on the past few winter months to consider the seasonal impact of water-related claims to small business. We took a look at 10 years’ worth of loss history data through LexisNexis® proprietary databases and found some interesting trends. Specifically, we compared non-weather related water loss data from season to season, including claims from accidental water discharge, water damage, freezing water and sprinkler leakage. Overall, we see a 40% higher average severity of non-weather water claims in winter months compared to non-winter months. Intuitively, that makes sense. But, there are a few things that attribute to that change that we found quite interesting.

First, seasonal changes are clearly at play. We took a look at commercial losses related to freezing water claims throughout the year. Naturally, both frequency and severity of claims are higher in the winter months, especially when looking at freezing water claims (a 63% increase of average freezing water claim amounts in the winter months). But, when we remove freezing water claims, we still see a 10% increase in water damage claims during winter months. Furthermore, these other water-related causes of loss are much more expensive with a 27% increase in claims severity. Thus, both frequency and severity of non-weather water related cause of losses increase across the board in the winter months.

Conversely, while seasonality has an impact, there are also losses caused simply by human intervention that add to these non-weather water related claims. This could range from a variety of incidents including an overflowing sink, a clogged toilet or even water damage cause by hanging clothes from sprinkler systems. What we found interesting in looking at the loss history data in LexisNexis proprietary databases is that sprinkler leakage is the most expensive commercial non-weather water cause of loss with a 95% higher average claim severity in winter months and 124% higher average claim severity in non-winter months compared to the other non-weather water cause of loss types.

As with smart home devices, we think there are benefits from IoT devices in commercial insurance. Water sensors that detect leaks or running water could help reduce claims frequency and severity. The personal lines study shows evidence of a positive correlation between water shutoff systems and water leak claims costs, and consumer adoption of these systems could to be driven by self-selection, conservation, insurance discounting and utility management and cost savings.

But, as an insurer, how do you know who needs the IoT device? Knowing loss history can help. Through LexisNexis® C.L.U.E. Commercial, you can see claims for the specific business or for the location regardless of the business operating at that location. With the C.L.U.E. Commercial report, you’ll receive insights and information about the event that occurred and you can then send the insured an IoT device if there is some sort of probability of a future claim. This could mean that the previous event has made the insured less of a risk because of their preventative action.

When considering the right IoT strategy for your commercial insurance business, it can be difficult to weed through the many options – from predictive machine maintenance, refrigeration monitoring, employee wearables and everything in between. However, beginning with cost-effective loss prevention systems for high-frequency perils such as non-weather water claims can bring focus to your strategy. Furthermore, the ROI around deploying these devices is far more compelling in commercial use cases than we are seeing in personal lines. These sensors and devices are cheaper and easier to install than ever before and can be a great tool for loss prevention and differentiation. With the right strategies, both business owners and carriers can benefit from timely, actionable and smart data-driven insights.

Our goal is to support the continuous improvement of our customers through timely insights for better business decisions. For more information, call us at 800.458.9197 or email us at

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