Articles - Making home insurance smarter

The home insurance market is entering an important phase in its development. We are seeing a number of new market entrants with wholly digitalised propositions. Tied to this is increasing interest in how smart home devices could be used to mitigate insurance risk, and even, in the future, be used to support underwriting decisions.

 Jay Borkakoti, Director of Home Insurance, UK and Ireland, at LexisNexis Risk Solutions

 It’s not surprising that we are seeing more activity in this area. As a nation we seem to be gathering more ‘stuff’ than ever before with the ABI reporting that the value of possessions now totals close to £1 trillion, yet over a quarter of households have no contents insurance .

 At the same time, the industry is battling with high claims costs, in particular around escape of water. The weather in late February and March 2018 led to property insurers paying out a record breaking amount in burst pipe claims in the first quarter of the year.

 So many insurance providers are looking at how they can make the home insurance process smarter to ease the customer journey from the first point of contact and smarter in terms of rating and mitigating risk.

 Looking first at the customer journey, it’s widely acknowledged that the breadth and depth of information requested from consumers when they first contact a home insurance provider for a quote makes shopping around for cover a pretty onerous process. Insurance providers need this information to make a proper evaluation of the risk but our own research has shown this is a real pain point and can lead to inaccurate information being provided based on guesswork or people dropping out of the process altogether.

 In LexisNexis Risk Solutions research, 16% of home insurance customers said they struggle to accurately answer certain questions in the application, such as the year the property was built or the rebuild cost of their home. In addition, 16% felt the insurer should already know some of the questions asked.

 The solution is to prefill some of the key data for the customer about their property. Initially this would be using property attributes like number of bathrooms, bedrooms and the year the property was built. This can reduce the number of questions by up to 15% once the personal and address details have been confirmed. Looking forward, data could also be prefilled on the building construction, environmental risks, past policy and claims information to further reduce the onus on the customer to gather this information.

 This not only makes the customers experience smoother but may also potentially reduce deliberate or accidental mistakes at application stage – highlighting potential fraud and protecting innocent applicants from underinsurance.

 In our study, 95% of consumers told us they are happy for their property information to be used in prefilling the application form, and 88% are happy for past claims data to be used. Data prefill in home insurance is pushing against an open door.

 When it comes to how the industry can get smarter around risk mitigation and rating for risk, there are clearly opportunities to leverage smart home technology and the data emanating from these devices to help lower claims costs and improve pricing accuracy.

 The fact that partnerships are emerging between home insurance providers and smart home technology firms shows the potential is already being explored. It’s still early days however and insurance providers are currently facing some interesting conundrums.

 The first question is whether they should offer a discount and at what level, to a customer with a smart home device, without any hard evidence at this stage that they may be a better risk than someone without. The industry needs to learn more about the claims behaviour of people with devices but they can only really start to build this knowledge if they choose to incentivise and reward customers for the presence of a device. Once that knowledge is built there will be much greater impetus for insurance providers to work with the smart home device manufacturers to develop technology that will help reduce insurance losses.

 The next question for insurance providers has a much bigger financial implication – this is whether they should wholly or partially bear the cost of installing risk mitigation devices in customers’ homes. This will help build the scale needed to be able to price using the data from the device, alongside traditional rating factors. The problem is that a leak detector can cost more than an entire home insurance policy and while it can potentially cut the size of claim, very few devices prevent a leak from happening. So again, it’s difficult at this stage for insurance providers to work out the return they’d get on a sizable investment.

 Perhaps the logical next move is to go down the discount route in exchange for access to the data collected in order to test the water and start building knowledge around claims behaviour. This is certainly the road a number of insurtechs have taken and the next couple of years will be crucial in determining the extent to which the sector and householders will benefit from connected home technology.

 The ideal future is one connected home data platform accessed by the industry to help support competitive pricing for owners of smart home devices, based on lower claims costs and the ability to potentially mitigate some claims all together. That’s the vision, getting there will hinge on consumer adoption and willingness to share their connected home data in return for lower cost home insurance.
 LexisNexis Risk Solutions carried out an anonymous survey, the UK Home Insurance Consumer Study, 25 January–1 February 2017. The sample was 1,500 residential homeowners in the UK, who owned their current residence for two years or more, home insurance covering their primary residence, equally or solely responsible for home insurance decisions.
 LexisNexis Risk Solutions Home Prefill Calculations
 LexisNexis Risk Solutions carried out an anonymous survey, the UK Home Insurance Consumer Study, 25 January–1 February 2017. The sample was 1,500 residential homeowners in the UK, who owned their current residence for two years or more, home insurance covering their primary residence, equally or solely responsible for home insurance decisions.


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