Can utilities unlock the insurance opportunities of connected technology?

So far we have seen how customer demands are driving invention and innovation within the utilities industry. Next-generation energy consumers are savvy and environmentally aware, and they have high expectations of the products and services that they pay for.

In the previous article, we explored product development and how forward-thinking utility companies might provide connected or packaged home solutions with the help of fourth industrial revolution (4IR) technology.

But 4IR not only enables connected utilities, it also creates opportunities for providers to expand further into insurance in order to support consumers seamlessly.

Consumers expect providers in all industries – telecommunications, transport, utilities, banking and so on – to respond faster, better and in more personalised ways. The question is: how much of the intrusion and surveillance that’s necessary to achieve those goals are customers willing to accept in return for convenience and cost savings?

We’re beginning to see how technology-based services are driving new insurance-led propositions:

• Blockchain: smart contracts speed up claims processing and payment authorisation
• Robotics: social media and speech analytics can identify preference patterns and suggest customised products
• Drones: can be instantly dispatched to the sites of road traffic accidents to inspect any damage remotely
• Sensors: prevent break-ins by gathering third-party data on suspicious activity nearby and activate alarms and locks
• Automation: could track lost airport baggage through integration with an airline’s systems
• Smart homes: proactively monitor water levels, temperature and other risk factors, alerting tenants and insurers to potential issues
• Vehicles: monitor driving style through telematics and adjust insurance premiums accordingly, provide on-site accident support or claims management
• Wearables: provide real-time medical feedback on all vital signs, connect to other devices and insurers to continuously personalise people’s life insurance policies depending on their lifestyle.

But while both the utilities industry and the insurance industry are beginning the process of moving to adapt these technologies into their sectors, there seems to be limited enthusiasm for their adoption and a lack of joined-up thinking about how they could be used together, despite the many ways in which they could add value for both providers and customers. Homecare cover plans, for instance – a staple offering across the utilities industry that covers the costs of maintaining and supporting heating, boilers, plumbing and drains or electrics – are not offering predictive or preventative service options.

Standard home insurance doesn’t cover the cost of fixing or replacing a broken boiler, because such faults are often caused by lack of good maintenance or regular servicing. Yet, adding sensors and a smart device that monitors a boiler’s performance and alerts the owner when it needs to be serviced or repaired could prevent more serious faults developing. This represents an opportunity for the utilities industry to harness the monitoring capabilities of smart technology and make inroads into the insurance market. The issue is that organisations offering insurance are behind the curve in terms of using technology to expand the value they offer or reduce their tariffs.

Providing more value to customers through insurance

The more common 4IR technology becomes in people’s homes, the greater the scope for the utilities industry to use its benefits to offer customers insurance products and the more likely this is to become a growth market.

For example, one of the most popular connected technology devices is the Ring doorbell. This remotely operated video doorbell enables householders to answer a ring at their door from anywhere via an app on their smartphone, to see who is calling and to choose whether to interact with them.

While Ring has mainly been promoted to consumers as a lifestyle-enhancing technology, insurance challenger brand Hiro says it demonstrates how out of date the industry’s value model is. “Many of these devices, such as video doorbells or leak detectors, are making people’s homes safer, but these homeowners are getting nothing in return from incumbent insurers,” explained CEO Krystian Zajac.

Another challenge is the splintering of the insurance market. For instance, energy companies are stepping away from stand-alone boiler or heating cover and starting to employ new technology (in particular home IoT technology) to offer more integrated homecare cover. Yet, these ‘digital services’ aren’t being tied into home insurance cover. Energy companies that offer homecare cover are adopting smart home technology (British Gas’ Boiler IQ device for example), but these are not normally linked to insurance policies and premiums. Other energy companies with partnerships have the potential to extend their range of services but seem slow to offer – for example, while So Energy partners with HomeServe to offer customers their first year of service free, HomeServe’s leak detection product isn’t included in this package. Meanwhile, challenger brands are introducing a hungry market to the concept of insurtech, using technological innovations to ‘squeeze out’ savings and efficiencies from the existing insurance industry model.

Challenger brands are offering discounts on home insurance premiums to customers who are willing to share their homes with monitoring technology that can keep them more secure (such as Ring), safer (like leak detectors) or better maintained (like a smart boiler) – or even more environmentally sound (like smart thermostats). It’s up to utilities providers to get in on the ground floor and challenge the insurtech challengers.

The centuries-old insurance industry is one of the least digitally mature. As we’ve previously discussed in reference to utilities, the old guard needs to undergo a significant shake-up or risk losing a lot of business to start-ups and challengers. Already, standalone homecare providers with connected home technology are disrupting from outside the energy market, such as insurtech Neos, which partners with Roost, HomeServe and ARAG. Aviva acquired Neos in 2018, so there has been some traction around large incumbent insurers adopting insurtech, but their success will depend on whether they’re capable of making the tech simple and easy for customers to use. If the utilities industry can do both, the home insurance market is wide open to it.

Is Hiro the blueprint for the future?

In the case of Hiro, customers will be able to download an app that detects any smart devices in the home that are connected to the user’s wi-fi network – security lights, doorbells, meters, leak detectors, thermostats and so on. Hiro scans your home network, inventories all your smart technology and automatically creates an insurance policy tailored to you. The more protective and preventative smart home technology you buy, the cheaper your policy. It works with more than 30 manufacturer partners to offer member-only discounts on the best smart technology for protecting your home.

The company claims that customers will be able to access an exclusive marketplace where they can buy additional smart technology at up to 25% off. By encouraging customers to buy smart technology, the insurer believes it will proactively help to prevent ‘severe events’ from happening.

UK citizens have always resisted interference in personal freedoms and individual space, from blocking the introduction of identification cards to having concerns around surveillance and data privacy. Nevertheless, ownership of smart home technology has exploded in recent years, and three in five UK households now own at least one device, whether Amazon’s Alexa or Ring, Google’s Home or Nest, Apple’s Siri or Samsung’s Bixby. This always-on, always-listening technology is being welcomed into people's homes at an astonishing rate, despite its echoes of George Orwell’s Big Brother, without consumers quite realising what opportunities this offers big companies.

Some smart insurance technology has failed to take off quite as anticipated. Telemetric monitoring of motor vehicles, for example, analyses how people drive and whether they follow speed limits. This data is used to adjust insurance premiums, but it also provides an unwelcome reminder that one is being watched when drivers receive alerts about slowing down or taking a certain route.

A model used in the US allows your insurance provider to advise you on the safest route to your destination. Follow its advice and you’ll be rewarded; don’t and, if you have an accident on the way, it could affect your claim or future premiums.

While these ‘black box’ solutions do reduce costs initially because they drive down premiums, and while people tend to have fewer accidents because they are more alert and careful, they also tend to be discarded after the first blush of novelty has worn off. Consumers will take up the new technology but they won’t retain it, because of issues like their car battery being drained by a constantly-polling device, lack of flexibility to allow for different people driving a vehicle and resentment of the intrusion that the device represents.

Protecting the vulnerable through home monitoring

We’ve previously touched on the value of smart meters in vulnerable people’s homes, to monitor their energy usage and watch for changes in their behaviour that could indicate that they need help. This type of home monitoring and support can give peace of mind to carers and loved ones. Healthcare insurers like BUPA offer fobs and sensors for this purpose but this technology has failed to take off to any great extent because the demographics for whom these devices are designed often lack the technological knowhow to use them properly.

Utility companies need to look to the range of 4IR technology and identify opportunities to slot in capabilities where there might be disconnects. Often the growth in uptake of connected homes is hindered because the various devices simply don’t interact with each other. Tech start-ups are designing applications that serve as a common interface for connecting all these different devices, but you still have to be quite tech-savvy to use them – what’s needed is plug-and-play solutions that anyone can use and that will save money on insurance.

The success or failure of Hiro’s model will be fascinating to watch. The industry is poised to see whether people are willing to ‘go with it’, accept everything being interconnected and share their data – in other words, whether they’ll accept being watched in return for saving money. We're at a tipping point right now, at which all the components are available to an insurance or utility company that seizes the reins and joins everything together: the connectivity, the different devices and consumers’ level of comfort with being monitored and, crucially, sharing their data.

Who’s going to take advantage of that, change the model and push it through? In order to make these changes, firms will need to be more agile – but this is easier said than done for providers hampered with legacy infrastructure. In the next blog, we’ll discuss how utility firms can begin that transformation, as well as how they’ll need to prioritise transformation activities.