Property Insurance Reimagined

White Paper by Rob Galbraith – Author of ‘End of Insurance as we know it’ and Pankaj Parashar – Cofounder of Purple Ant

The current risk assessment process in personal and commercial lines

The insurance industry today is brimming with traditional, easy to obtain classification data that has a loose correlation with losses instead of real-time streaming IoT data that directly monitors exposures and is tightly linked to the causation of losses.

For example, it is assumed that in most cases it is more costly to insure an 18-year-old male driver than it is to insure a 35-year-old female driver. This is based on aggregate losses for the group of drivers in each cohort – but is it accurate for each individual driver?  It’s highly likely that there are some 18-year-old male drivers who are less risky than a 35-year-old female driver – the challenge is how to identify these individual risks as distinct from the broader segment.

 

Similarly, homes are rated for risk based on outdated information. In many cases, a property rating is more about the age and materials of the home, which are considered public record. MLS and other real estate databases generally contain newer characteristics of the home, but insurance typically relies on county records which are often outdated.  Many people update major systems including their home’s appliances and construction but don’t update this data with the city, either because they are not required to, are not aware of how to do it, or they may be afraid of increased property taxes.

 

While obtaining property characteristics from public records may be easy, similar to the driver example, they only have a loose correlation with exposure to loss.  For example, some homes that are 25 years old are in dire need of maintenance, while others have had all major systems replaced and are in the best shape they’ve been in years.  Yet they both are generally assessed by insurers as having the same exposure to risk if all that is being considered is the age of home and type of construction.

 

The Power of IoT/AI/ML

IoT sensors provide carriers with the opportunity to collect more relevant data in real-time. Sensors can take into account new renovations or changes made to property risk – i.e., moving beyond just the age and construction materials of the home to include how the homeowner has updated/improved the property with new appliances, systems, or added precautions. Moreover, IoT sensors can tap into new sources of data, e.g. smart thermostats that can alert to conditions that might lead to frozen pipes. For older homes, smart water and humidity/temperature sensors can help reduce the frequency and severity of claim events.

 

Using IoT technology also allows carriers to adjust and make macro changes more swiftly. For example, the COVID-19 pandemic led to more people remaining at home instead of working or traveling. It might be assumed that because homes were occupied more, incidents of theft would be less common. However, there could be an increased possibility of fire as more families cooked for themselves rather than eat out.

 

Instead of relying on fixed property characteristics such as the age of home, carriers can update risk-based on immediate and specific detail collected by a homeowner’s own IoT sensors. While real-time data streaming from a host of IoT-enabled devices would be overwhelming to a human analyst using a spreadsheet, cloud storage makes capturing this data cheap and AI/ML makes it easy for data scientists to detect changes in usage patterns that can indicate an imminent loss.  This paradigm shift in assessing risk allows for an intervention PRIOR to that triggering event, helping to reduce or even eliminate losses and taking property telematics to a new level.

This is a win-win proposition for both customers and carriers: insureds avoid a significant loss which costs them time and money in the form of their deductible, while insurers save money by avoiding paying a claim entirely.  Carriers even build customer loyalty WITHOUT having to incur a claim in the process!

IoT Technology Presents a New Way to Assess Risk

Because of the relative newness of IoT technology, there is a primary need for education to overcome objections and misperceptions from both carriers and insureds.  At the forefront of these questions: how difficult the equipment is to install? Fortunately, installing IoT sensors is very hands-off and doesn’t require the carrier to do anything. If these devices are pre-configured before they are sent to the insured, all they have to do is to plug the hub into the wifi Router, place the sensors near the sump pump, underwater heater, and kitchen sink and we are good to go. Some devices such as shut off valves may need professional installation but those are generally more appropriate for high net worth homes or properties whose premiums are high.

 

Another benefit of IoT technology is that there is a clear value exchange. Homeowners want a clear articulation of what is at stake, how they are benefiting, and how that translates into savings. IoT technology means increased transparency regarding data usage. The IoT dashboard which is both app and web-based provides a customized view of the savings and includes a simplified privacy statement that appears when the user logs in.

There are added benefits for the carrier as well. Most insured do not interact with their carrier except when purchasing or changing insurance, or when there is a claim. IoT technology creates natural touchpoints that do not involve loss but improve customer loyalty and retention. Stressless touchpoints mean the property owner feels cared for/looked after – they are “getting their money’s worth.”

 

As smart devices are quickly being adopted by insureds, the control, convenience, and ease of use will be a selling point for consumers who are increasingly using these devices in other ways to manage their homes. Property Telematics can then catch up with their Auto counterparts.

 

What does the future of insurance look like? 

        

The ultimate goal is for property owners to think of IoT technology as an extension of their existing insurance, as an expectation and not a novelty. A device-agnostic platform is in a unique position to provide superior IoT monitoring services because it is easy to use and integrates with already existing smart technology. In the future, a consumer will receive one IoT kit customized to their property’s unique needs. They can deploy themselves, without having to wait to schedule installation. Deployment directions do not require the customer to be tech-savvy or “do homework.”

 

Carriers can use data monetization as an incentive to collect information on the property. Consumers will be able to see clear value in the use of the sensors, which may translate directly into savings as well as better protection for their property.

 

Insurance” which prevents the frequency and intensity of damage will be less like insurance, but more like a warranty that provides coverage 24/7/365, and claims are relegated to the worst outcome possible rather than business as usual.

About Pankaj Parashar

Pankaj Parashar is Co founder and CEO of Purple Ant. Our vision is to help homeowners fall in love with their insurers in home telematics space using new technologies such as IOT and AI. We have a complete solution comprising hardware, software and platform that enables Carriers to adopt these technologies and pay on a subscription basis to provide Insureds with a positive experience.

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