LeakSentinel Discusses How Companies Can Capitalize on Smart Home Insurance

by Parks Associates | May. 11, 2018

Bill Loesch, CEO, LeakSentinel spoke with the Parks Associates’ analyst team prior to the 22nd-annual CONNECTIONS: The Premier Connected Home Conference to discuss how companies can capitalize on consumer interest in a home insurance-smart home connection.

Bill will be speaking on the Insurance and Home Services: Being a Trusted Advisor panel at 1:30 PM, Thursday, May 24, in San Frncisco. He will be joined by the following speakers:

  • Yuval Harry, Head of Partnerships, Hippo Insurance
  • Aleem Lakhani, EVP, Specialty Risk, AmTrust North America

How can companies capitalize on consumer interest in a home insurance-smart home connection?

Homeowners will pay to protect their homes from fires and robberies, they won’t spend money to guard against water leaks. Given that insurance claims for water leaks are four to five times more frequent than claims for fire or theft, why is this? Fires and robberies pose real threats to a home occupant’s personal safety. No one has ever drowned in a home water leak.

From this perspective, it’s easy to understand the vast disparity in the adoption of home security systems versus home water leak detection systems. In contrast to home security systems, to get homeowners to buy and install home leak detection systems, such systems must be financially attractive to the homeowner. Since home water leaks are covered losses, and generally result in claims that exceed the homeowner’s deductible, the only way to make such systems financially attractive to homeowners is for property and casualty insurers to offer premium reductions for such systems.

Of course, any such premium reductions must also be financially attractive to the insurer. Home water leak claims represent 20% to 25% of the claim dollars paid by home insurers in the US. This means that, to be attractive to the insurer, an X% premium discount for a water leak detection system must generate significantly more than 5X% reduction in the dollar amount of water leak damage claims. This simple math leads one to conclude:

1) To justify a meaningful reduction in annual premiums (e.g. 5%), a leak detection system must generate substantial reductions in water damage claims (e.g. more than 25%). Property and casualty insurers have concluded that water leak detection systems that warn only (i.e. no automatic shutoff valve) do not deliver sufficient reduction in water damage claims to justify meaningful premium reductions.

2) Some property and casualty insurers do offer significant premium reductions for water leak detection systems with an automatic shutoff valve. However, such systems are very expensive (both to purchase and to install) and can therefore only be economically justified by homeowners of high value homes with high annual insurance premiums.

For smart home leak detection systems to be more widely deployed, they must be financially attractive to both homeowners and insurers.

For more information on CONNECTIONS, visit: www.connectionsus.com.

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