Smart Homes Love Insurers


 

Insurance companies have mastered the business of risk financing. The insurance industry has developed the science of pricing risk into an incredible art that now blends data science, actuarial science and behavioral economics seamlessly across most lines of business to varying degrees. While many insurance companies have helped pioneer risk management techniques for factories, commercial property, homes, automobiles and all other types of property, it is clear that in the last two decades insurers have not developed their own digital products to enhance risk control, instead relying on external vendors for software and hardware solutions. In fact, capital markets have pushed this divide further and further to the point that the average insurance company may write about and even practice risk management, but still rarely markets or sells digital risk management tools and a hardware first approach to risk management and mitigation, opting instead for pricing, savings and humorous advertisements and messaging as the way to build long term customer value.

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The technology industry, on the other hand, focuses on risk control through control systems, behavioral psychology, changing and augmenting human behavior and the new world of artificial intelligence and quantum computing.

Technology is overtaking insurance as the leader of risk management innovation in a sensor-based world. Even with billions of sensors deployed globally, sensors are still early in leveraging machine learning but gaining quickly. Soon instead of paying to transfer and finance risk, a home robotic system will reduce the likelihood of major hazards and risks causing any damage to less than it costs to finance their preventative solution.

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Many categories of losses, including water and fire, two of the big three in property insurance, are set to change drastically in 2021 and beyond. In fact things have already changed in the special case of the disastrous water loss situation across the US and Canada. One of the most common and costly homeowners loss categories is water leak damage. In a historic and landmark IoT study published this year about the Flo Water Shutoff Valve device, LexisNexis showed that homes in the study saw a 96% decrease in paid water leak claims compared to two years prior to installation.

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Though detractors were given voice by certain industry media outlets and are still to be found in actuarial and underwriting departments in a majority of insurance companies, the attainment in a significant sample of a 96% reduction in losses is unambiguously historic - a landmark moment for humanity to control the most basic substance in the most fundamental place in the human experience. This substance which expands as it freezes, punctures pipes, blows out bathrooms and fills up basements destroying tens if not hundreds of thousands of dollars of property in large loss It is both sustaining life and inundating fortunes knows no bounds. Conquering water damage in the home is a milestone for mankind and a loss of partial responsibility for property insurers. The significance of this home water related loss exposure taming by a sensor, actuator and machine learning masterpiece demonstrates quite clearly that in this case and therefore henceforth in all major cases rests the realizable potential to be crossed. We at MindHome call this the Technology-Insurance Risk Entropy (TIRE) Line and crossing over it means quite simply that the risk tends to be more economical to finance using a technological risk prevention solution rather than paying the actuarial fair rate to insure the loss exposure.The Flo device dramatically reduces the risk of home water loss exposure - so much so that the money it saves on insurance for some carriers is far more than the cost to finance the device given reasonable financing assumptions.


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