Is there a place for usage-based insurance (UBI) in the home insurance industry? UBI has become a hot topic during our current “situation” (as we call it in my own house). Social distancing practices and stay-at-home orders are keeping people home and off the roads. The effects for auto insurers is pretty obvious: miles driven, crashes and loss costs are way down and as a result stand to change the way we think about UBI forever.
But, this isn’t a conversation about cars. I want to talk about UBI for home insurance.
Two sides of an occupancy coin
The fundamental premise of auto UBI is “the more you drive the more likely you are to have a claim,” and if all else is equal the lost cost slope is fairly linear. Early signs are that home trends are far more nuanced. Loss trends from certain perils, like theft, appear to improve with occupancy while others, like water losses, appear to decline. But we only know a fraction of the story. Thanks to sheltering-in-place, we’re starting to see the claims impact of a fully and constantly occupied home. Every stove top, water pipe and door hinge is on full tilt when a home is fully occupied all day every day. So it stands to reason that certain claims will naturally trend higher than others in those times. What about a home that is constantly but partially occupied – such as when mom or dad routinely work from home and the kids are at school or soccer practice? Should we expect the same frequency and severity outcomes in those cases, or does occupancy ultimately result in a more U-shaped loss curve, where fully vacant and fully occupied homes perform more poorly overall and homes that are incrementally occupied do better?
If we operate on the notion that degrees of occupancy affect degrees of risk, then we should ask ourselves what role could UBI play in home insurance and where do we begin? The answer might just lie in smart home technology.
A new, personalized way to assess risk
An estimated 70 million homes have some kind of smart home device installed. Many of these, such as thermostats, motion sensors and even water systems, provide data about when and how houses are occupied. Operating on the premise that occupancy impacts loss costs, will recent events spawn additional smart home insurance programs, in the same way that they might enhance participation in usage-based auto insurance?
Recent research indicates that now just may be the time. Here’s what we know:
- Our consumer study released in February shows that 78% of smart home consumers are willing to share their data for an insurance purpose, and upwards of 70% said they would invest their own money to purchase devices if given an insurance incentive.
- Through our recent water loss study with Flo by Moen, we also have evidence that some devices go far beyond telling us about occupancy, and are actually preventing losses – a 96% reduction in claims, in some cases!
- A recent consumer study published by Aite showed that many consumers might only require an incentive as low as 5% to begin trading their data for insurance purposes.
Consumers are telling us they want to bring smart home data into their insurance experience and smart home technology has the power (and scale!) to bring UBI to home insurance. The gap we must bridge, of course, is unlocking that data in a way that delivers confidence and value to homeowners – and to insurers.
UBI for home? It just takes a little courage
What does this mean for the home insurance market? Now may be the right time to think differently about using UBI as part of home risk assessment. That may mean insurers should begin collecting self-reported adoption and utilization stats in their underwriting routines. Self-reporting is imperfect, but can uncover important data points for business cases. Or if you’re farther down the path in your smart home strategy, then maybe now is the time to take your trial to the next level and engage with a data partner to help understand what that smart home data is saying about loss trends on your book of business.
Whatever your next move, success means first proving the promise of the data and then delivering on it. Partnering with vendors who bring durable platforms and expertise to the table can help you succeed. Contact us today to see how LexisNexis Risk Solutions can help you gather your courage and take that first step!