A decade ago, telematics devices revolutionized a significant portion of the auto insurance industry. Today, the usage-based insurance model is coming to homeowners policies.
The home appliance company Nest – which uses “smart gadgets” to control temperature and other home settings – announced a deal with Liberty Mutual and American Family Insurance this week. Under the Nest Safety Rewards partnership, the two insurers will offer discounts of 5% to policyholders based on their Nest device data.
Specifically, the insurers will ask for data ensuring that Wi-Fi, batteries and sensors are working properly.
“These technologies provide the opportunity for consumers to reduce the chance of harm to their family and home by detecting events that trigger alerts on their smartphones, wherever they may be,” said Michael Robon, senior vice president and property product manager for Liberty Mutual Insurance. “We believe customers seeking to monitor their homes with devices like Next Protect demonstrate responsible behavior. As a result, we will be offering these customers reduced pricing on their home insurance policy.”
The program is expected to roll out in five states later this month through Liberty Mutual, and in Minnesota through American Family.
The expansion of big data and usage-based insurance to homeowners and other policies has long been anticipated by insurance industry professionals.
“With the use of big data and usage-based insurance, actuaries are looking more at causal relationships rather than just corollaries,” Towers Watson’s Ron Kozlowski told Insurance Business
. “If you can do things for your home—for example, remotely turning on the heater on a cold night when there is the potential for pipes freezing—that could save you in the long run.”
While the discount is likely to be welcome to some, however, the use of Nest data by insurers has raised questions about consumer privacy.
According to a 2014 survey from Deloitte, roughly half of insurance policyholders view the use of UBI negatively. This is especially prevalent among older consumers – in other words, those most likely to own a home and benefit from the Nest discount.
Nevertheless, it is likely that demand for UBI and the discounts it provides will grow. Younger homeowners will begin to influence the market, and the use of surveillance technology by insurers may gradually become more accepted.
As such, Deloitte concludes that “the genie is out of the bottle.”
“The industry as a whole is not likely to go back to relying on its traditional methods of assessing auto risks,” the analyst said in its report.