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Residential Security

State Farm’s $1.2 Billion Investment in ADT a Turning Point for Smart Security

State Farm’s $1.2 billion investment in ADT for 15% stake in the company signals a turning point in the slow and somewhat tepid attention insurers have paid to the smart security space. Smart security products and systems stand to save insurers billions of dollars through proactive monitoring, detection, and deterrence for burglary, home, and fire damage.

Parks Associates’ July 2022 research finds:

  • 23% of US internet households have experienced water damage
  • 13% have experienced a home burglary or break-in
  • 7% have experienced fire damage
  • 15% of security system owners in US internet households report that insurance discounts triggered their purchases

The prevalence of water damage reported by consumers aligns with findings from insurance companies – water damage is the second most common cause of an insurance claim, behind only wind/hail. Insurance companies like Hippo are now working with moisture sensor makers like Notion to supply consumers with devices that can detect water leaks as well as intruders.

By their nature, insurers are risk-adverse, and most partnerships to date have been limited and slow-moving while ongoing trials build the data set to prove out potential savings. Still, while insurers have struggled to find ways to leverage smart home and security devices to reduce risk, partnerships help insurers attract new subscribers and help security providers communicate an additional savings benefit to their products. Security and smart home providers have pursued the property insurance channel for years, with several announcing multiple partnerships in the past two years. Most of these arrangements offer customer discounts on insurance premiums through the adoption of smart home security technology:

  • ADT announced partnerships with Hippo and Branch Insurance
  • SimpliSafe has partnerships with Hippo, Farmers, USAA, Ohio Mutual Insurance Group, and Branch Insurance
  • Kangaroo also has partnerships with Hippo

This investment from State Farm signals a new phase for the smart home-insurance business model. State Farm not only brings 13.7 million homeowners’ policies to the table but plans to invest an additional $300 million to fund product development and marketing to reach new users. Reaching beyond the tech-loving early adopters to the more mainstream consumer has been a challenge for the smart home space, and according to Parks Associates testing, a discount on home insurance for using smart home products is the #2 incentive, out of 27 unique incentives tested, that would encourage non-owners to get into the smart home game.

Smart home security technology can potentially drive billions of dollars in savings for insurers and consumers. Partnerships with insurance companies can help extend market reach for residential security and smart home players by offering an additional purchase or distribution channel. This level of investment from two of the largest companies in their respective fields will likely reverberate around the industry and it may encourage other top insurers to speed up their timelines to put more skin in the game.

Parks Associates tracks market activity and the competitive landscape in its quarterly Residential Security Tracker.