Technologies’ impact on Personal Lines Insurance:
Our world is rapidly transforming due to the amazing growth of data accumulation, data science techniques, technology advancements, the Internet of Things, lower cost data storage and the pace at which all these are growing. This growth in Technologies has a major impact on the economy, individuals/families, and employers and hence these technologies’ impact on Personal lines Insurance will be quite profound.
Examples include the growth in smart or intelligent homes and autonomous or semiautonomous cars, wearable devices, etc… While this fast moving technology is racing ahead, the legal and insurance issues are struggling to keep up.
As consumers this will present some interesting opportunities to find insurance carriers who will partner with those of us, who utilize best in class technologies to make us best in class risks/insureds.
Examples of these technologies can be seen below:
Smart Home Technology
A smart home is one that is equipped with various lighting, heating, and electronic devices that can be controlled remotely by smart phone or computer. Another example would be the Nest Smoke and Fire Detectors or thermostat. (Personally I embraced the idea of a smart home, I have the light switches, thermostats, locks, security alarm/cameras, Alexa, and more!!) Also, we currently have Solar panels on the roof and a Solar City system to utilize the energy from Solar. In addition, more energy efficient homes (think solar panels that interact with a smart grid)
These devices are useful as any person could imagine, for example I could contact my smart home on a cold and wintry day via my phone before leaving work to verify the home temperature is 72 degrees, the doors and alarm are on, and the TV/lights are off.
A smart home is inextricably linked to the internet, so they have the ability to be managed remotely. The good news is they have positive impacts on protecting your home while not home. The other fact is the data collected by many of these tools may become useful to insurers over time.
Home owners will need to properly anticipate and evaluate the profound implications from owning this data in the future.
One trend will likely be a reduction in loss frequency for homeowner’s policies.
If this prediction is accurate, it’s based upon the premise that if houses are full of sensors and online devices, the communication between the house and the home owner will multiply. And this communication will reap huge dividends in the form of effective loss-control devices in homes.
Home Loss control devices for the Future:
A great article on this topic from IRMI, provided the following:
| LOSS-CONTROL DEVICES IN FUTURE HOMES | |
| Device | Description |
| Water Leak Protection | Water sensors that can detect water leaks in the home and immediately contact the owner and any predesignated plumber; these devices will be able to also shut off the main water supply. |
| Theft Protection | Biometrics (e.g., fingerprints) and sophisticated motion sensors can immediately stymie or detect a would-be burglar.4 |
| Fire Protection | State-of-the-art smoke and fire detectors automatically alert the owner via smart phone that something is amiss at home.5 |
| Ground Sensors | A community exposed to mudslides may have ground sensors embedded in the surrounding landscape, providing smart phone alerts to individual community members.6 |
| Nanotech Roofing Materials | Carbon nanotube composite materials (still in early development) are over a hundred times stronger than steel and much lighter than traditional roofing materials; they could be nearly impervious to hail.7 |
| Fortified Homes | Utilizing superior and advanced engineering, building materials, and standards, future homes will be extremely resistant to hail, high winds, and hurricanes.8 |
Smart Cars
Semi-autonomous autos and autonomous autos are now on the scene, although many of the features are in the beginning stages, auto manufacturers and the large Googles/Ubers of the world are racing to be the first to launch their autonomous vehicles.
The timeline on when the fleet will turnover is in great debate and how long the impact of this technology will remain to be seen, but it is going to be everywhere.
Many countries are working on this technology, so the impact will not be limited to a region or country.
With these possible societal changes and safety improvement projects, how will the legal, insurance, and liability issues evolve?
For consumers, it may improve safety, remove the need for personal liability insurance, and improve productivity, if you have a smart car…if not the severity and insurance expense associated with manual or non-smart car could be astronomical.
See our article on autonomous vehicles to understand more as a consumer, however, the implications for personal auto insurers arising from these trends is uncertain.
It could be expected to see a dramatic decrease in auto insurance premiums and losses in the next 10 to 20 years. The auto insurance underwriter (which may be artificial intelligence and machine learning) will focus on insuring the software and hardware of the automobile, rather than the driver.
Carriers focused or with heavy personal auto book should be scrambling to diversify right about now…
Smart Toys/Tools/Gadgets
Another expected trend will be the growing prominence of various tech gadgets, such as home robots (Think about IRobot), drones, and 3D printing. Although we don’t have a 3D printer, we currently have a robot vacuum cleaner that goes around the house.
In addition, homeowners’ insurance companies of the future, with this type of high-tech monitoring, will be able to constantly observe their risks with ubiquitous sensors rather than the traditional one-time initial inspection. For example, Drone technology although used by consumers can also be used by Insurance carriers to adjust CAT claims, observe roofs of houses, Tree damage, etc.
Cons
Yet these fully smart homes, devices, gadgets and cars are not without their pitfalls.
The law of unintended consequences is alive and well when it comes to technology advancements. Every other day we are hearing about major cyber-attacks, breaches, etc. (…Equifax anyone?)
With this increase in complex consumer technology comes the risk of hacking, bugs, and incompatibility problems.
There are also fire dangers associated with state-of-the-art solar panels.
That being said I would still argue the pros (e.g., reduced claim frequency, lower insurance costs, etc.) of this exciting and dynamic technology will outweigh the cons.
But the need for personal cyber coverage, both first party and third party coverage should be something bought ubiquitously over time.
Thoughts
The pros of this technology improvement will be offset by some of the cons. The law of unintended consequences will always drag on technology improvements.
However, at the end of the day as a consumer, I am excited for these changes. The productivity gains to society, may help offset the cons.
The insurance industry will have to grapple with these changes, as a result of these, homeowners insurers will need to offer a host of new products, including the following.
- Cyber-coverage for automated homes with more extensive loss of use coverage
- Products liability insurance for 3D printing operations gone awry
- Specialty inland marine endorsements for home robots
- Various smart home and green home upgrade endorsements
The smart homes and the autonomous automobiles promise major changes in the future of personal lines insurance in the area of loss frequency, loss severity, property monitoring, reduced auto ownership, increased car sharing, reduced premium, and human resources/technology shifts.
Are insurers prepared?
Are you as a consumer?
