(Written by someone who is a certified nerd, the earliest of early adopters and married for 17 years to a long-suffering tech widow…)
Another week passes and yet another article on insurers pinning their hopes on the Internet of Things (IoT) making a worthwhile contribution to loss ratios and the bottom line in an article on 16th December on ft.com – Insurers hope for a smart future from the connected home
With every article I write, every opinion I express, I try really hard to stay constructive, advance the discussion forward and reach a positive outcome. However, when it comes to the IoT I struggle. It’s been a term that’s been batted around the insurance market for more than 5 years as some kind of holy grail. For home insurers it’s their equivalent of telematics – something that will give some divine insight into the inner workings of their customers’ lives and enable better risk pricing. More than that, it’s been seized upon as not only a game-changer for insurers but also something that will fire the imagination of the consumer at the same time.
That’s not just a holy grail, that’s utopia, surely?
The trouble with utopia, as we all know, is that it’s not realistic. Even when it first appeared in text in 1516, “utopia” was an “imagined place” that served as some kind of escapism from the reality of the time and, unfortunately, this romance with IoT is, in my opinion, exactly the same … for now.
Having served customers and clients for the last 20+ years across various sectors of the home insurance market, one generalisation is almost invariably true. It’ll come as no news to anyone reading this that customers want to spend as little time and money as possible on their home insurance. At the same time, however, they still want to believe they’re getting as much value for their money as they can. While the perception of value might differ between the highly-commoditised 90% of the market that is amply served by the aggregators and the 10% at the mass affluent/HNW end where product differentiation can make a meaningful difference, still the unwavering truth is that home insurance is a grudge purchase. Nobody wants to spend a single second longer on it than they absolutely have to.
Asking the right questions … and being prepared for the answers
So if you ask any customer whether they’d like to spend less time and/or money sorting out their insurance every year, like anyone else I’d expect a resounding “yes” to be the answer. However I am also sure that if you asked someone whether they would be interested in an insurance product that “actively” protects their home, like a connected home could potentially do, I’m sure there would be quite a few “yes” responses from certain profiles. The idea, at least, that something you’ve never really seen the value of could actually “do something” while you’re out, sleeping, or away on holiday must sound like you’re climbing a rung up the value ladder, right? The “predict and prevent” of a smart home vs the “repair and replace” of a traditional one. What’s not to like? Surely this “smart home” thing has to be a winner for insurers and customers alike?
The trouble is, when you scratch even gently beneath the surface of what that might mean a customer actually has to do for themselves, their engagement with the “active insurance” idea falls away immediately. Having to spend longer getting a quote, answering more and different types of questions, paying just as much for insurance, if not more (in my quote experience) than buying from elsewhere, arranging for installation, learning to work with new software, dealing with false alarms/getting sensor sensitivity right for your home – these are the realities of setting-up an insurance-backed, endorsement-enforced suite of technology.
(I’m not going to start down the path of contemplating the associated real-world risks of being hacked, as separating fact from fiction muddies the waters too much for this discussion.)
And then the thought that, a year, 2 years later – what if my renewal quote isn’t quite as keen as 20 or 30 others I can see quoting out there? Should I stick or twist? Have I got to return all this kit or not?
Furthermore – like a worrying proportion of smoke alarms up and down the country that spend 364 days of the year with the cover hanging off and the battery disconnected because it keeps going off when you cook the toast – will people stop bothering to maintain, set or pay attention to half the detectors once the novelty wears off?
Psychologically is the best “connected” customer for an insurer one who gets their home kitted out because of a new kind of insurance policy? For real-world sustainability, should these people not already have connected their homes for their own reasons and it therefore be second nature to them? Insurers could then instead find an acceptable and agreed way of tapping in to a branch of their “connectedness”.
The trouble is, to fit in with the effort customers are prepared to invest in buying their insurance, connecting in a smarter way with their home insurance has to be invisible. Similarly it has to be of no effort and with no feeling of being bound-in. The world, the tech, just isn’t there yet and, personally, I can’t see anything that’s going to be invisible enough while contributing something worthwhile for at least the next 5 years.
Conversely there are already, and will continue to be, “things” that we carry with us or keep in our home that we could “invite” or allow our insurers to be part of. In exchange for that, we should get something we value, whether that be a much more intuitive journey, lower premium, lower excesses, reduced endorsements or simply better cover.
Empathy is a tradable commodity
In my opinion, connecting customers or, for now, their behavioural and other indicative data, more closely to insurers is definitely the future. It will not only help insurers to understand their customers and the actual risks they pose more intuitively, it will also mean a much simpler, less antagonistic pre-sale, post-sale and claims journey for the weary, disengaged consumer.
In turn, simplifying and speeding-up those journeys automatically lifts insurers up the value chain, bringing the consumer closer to their insurer and so starting a virtuous cycle that begins to break-down age old cynicism and separation. I certainly don’t see a utopia, but where both parties are closer and understand each other better, I do see a world in which customers and insurers are mutually more engaged with all the benefits that brings to all concerned.
We as an industry have to bend towards the customer. We can’t expect the customer to move closer to us by promoting some technology that is tangential to rather than seamlessly integrated with our lives, too much hassle or too expensive to the vast majority. By finding acceptable ways of working with what almost all of our customers already have or use every day, we can demonstrate an empathy and understanding that customers have never seen from their insurer. As a result, their engagement will be far more powerful and, more importantly, sustainable than any shiny new bit of tech gear could hope to achieve.