Smart Homes and Smart Cars: The Impact of Technology on Personal Lines
October 13, 2015
1
Agenda
1. Connected Homes
2. Building Characteristics
3. Auto/Vehicle Trends
2
Connected Homes
What is the “Internet of things”?
• Everyday objects connected to the Internet
participating together in a system
• The convergence of traditional connected
devices and “smart” appliances
What is the “connected home”?
A home equipped with electronic devices, such as sensors, appliances, and
lighting and heating applications, that are tied to the Internet and controlled
remotely via interfaces such as phones or computers
Hello, Smart Home | Part 2
http://www.youtube.com/watch?
v=9qKA9JDxaaw
5
The connected-home market is evolving rapidly
$0
$20
$80
$60
$40
$100
$120
Current and predicted revenue from connected-home-
related hardware, services, and installation $140
2012 2013 2014 2015 2016 2017 2018 2019
Glo
ba
l re
ve
nu
e (
in
bill
ion
s)
Google bought Nest
for $3.2 billion in
January and opened
software interfaces
in June
Apple announced
HomeKit platform,
promising a single
service to synch
devices
Source: Forbes 7/30/2014
Source: Strategy Analytics
6
29%
52%**
78%
86%
90%
0% 10% 20% 30% 40% 50%
Source: Icontrol Networks, 2014 State of the Smart Home
60% 70% 80% 90% 100%
Automate/regulate
home entertainment
Pet monitoring
Energy management
Property loss protection
Personal/family
security/monitoring
Top reasons for using a smart home system*
** percentage of pet owners *Survey sample is evenly divided
7
between males and females;
limited to ages 25+ and
homeowners with household
income of $50K+ or renters with household income of $40K+
The “cool factor” vs. “cold hard cash”
Source: Icontrol Networks, 2014 State of the Smart Home
51%
32%
would pay $500 for
a connected home
are willing to
spend between
$500 and $3,000
*Survey sample is evenly divided between males and
females; limited to ages 25+ and homeowners with
household income of $50K+ or renters with household
income of $40K+
8
Key differences between auto and home telematics
Factor Auto Home
9
Ultimate utility Insurance Multiple
Insurance and non-
insurance related
Multiple
Customer benefit Insurance related
Implementation Standard
Device Standard OBD-II/one
location
Multiple
Data delivery Cellular Various/consumer’s ISP
Homeowners telematics: Data possibilities
Usage • Patterns of energy and water consumption • Water running when no occupants home
• Which rooms are used, when, and for how
long?
Occupants • Occupants: number, frequency of access • Number of smokers; frequency and time of day of
smoke
• Number of connected devices
Contents • Movement of contents in and out of
house • Major appliance location
• Sprinkler system detection
Residence • Roof age and condition; material; weight
load • Wind speed and barometric pressure
• Gas leak detection
10
Making sense of the data
Technology is changing the way we live our lives. Analysts
estimate
Unwieldy and unstructured
Understanding data from multiple sensors and how it correlates to future loss is
a moving target that requires expertise.
? will be connected to the Internet by
2018. Source: Icontrol Networks, 2014 State of the Smart Home
Venture capital is available for this market
and
start-ups pop up daily.
enhanced economies of scale and a wave of innovative solutions.
Due to microsensor evolution in smart phones, there
are
9 billion devices
Predicting smart home market
leaders
Variety of devices
Infinite sensor applications
Big data
Collection and use of big data are growing exponentially, yet
a small percentage of useful data is analyzed.
11
Security and privacy concerns
• Many devices are general purpose computers
that can be hacked
• Controllers are vulnerable too
• Data and video are subject to security
breaches, potentially increasing litigation and
reputational risks
• Examples to date:
– Reset codes for door locks
– Lights, cameras, hijacked
12
Regulation
• Regulation is evolving
• Access to data may require
policyholder permission
• Protecting privacy in relation to
data collection efforts
• Start with obvious and nonintrusive sensors
13
Potential Insurance applications for connected-home technology
Obvious
• Monitor potential causes of loss to head off a damage-causing event (example: leaking pipe)
• Correlate connected-home data with loss experience to develop more refined rates
• Adverse selection considerations
• Develop a “lived in” seasonal residence product
Not so obvious
• All possible interactions with sensor data and losses
• Strengthen connections by addressing policyholder
concerns for safety, peace of mind, and pocketbook in
new ways
!
14
?
Where do insurers start?
Top family sensor applications
85% Fire detection
64% Carbon monoxide
detection
50% Gas leak detection
and shutoff
Source: Icontrol Networks, 2014 State of the Smart Home
15
Partnership considerations
• Develop strategic alliances that will
help you see connections and
understand the data
• Remain open to multiple
partnerships as shifts in technology
market leadership occur
• Look at R & D as an ongoing
investment to reduce losses and
build stronger policyholder
relationships
16
Key takeaways
Connected-home technology creates utility for
consumers that extends beyond insurance
Potential complexities and threat of
adverse selection, suggest benefit to get
involved early
The market is evolving faster than insurers
are entering this space, and many may have
difficulty catching up
Consider developing partnerships
to help you see connections and
understand the data so you can
strategize regarding future use
Take a long-term view toward product,
profitability, and relationship possibilities
1
2
3
4
5 20
Building Characteristics
Building Characteristics Influence Losses
• Uses specific building/property
features
– Construction style and material
– Roof age and material
– Square footage, lot size, number of
bedrooms/baths/stories
– Heating and cooling systems
– Garage and basement
information
– Etc.
Building Characteristics Example
Both houses are in the same ZIP code with a $300K ITV,
same year of construction, and located within the same PPC
3,000-sq-foot, 4-bed, 3.5-bath colonial
with a brick exterior and an attached 2-car garage 2,500-sq-foot, 3-bed, 2.0-bath ranch
with wood siding and a 2-car carport
Building Characteristics Summary
Multiple stories have higher water non-weather losses
3.5 baths and two stories lead to higher water claims
Attached garage lowers fire and wind exposure
Fireplace increases hail exposure
Brick construction lowers weather claims
• Hail: 1.258
• Water non-weather: 1.309
• Liability: 0.859
• Fire: 0.908
All-peril factor:
1.165
Larger floor plan has higher weather exposures
Fewer bathrooms decreases non-weather water
Pool increases wind and liability exposure
Composite shingles lower weather claims
Single story increases theft and vandalism
• Hail: 0.605
• Water non-weather: 0.905
• Liability: 1.162
• Fire: 1.373
All-peril factor:
0.950
Technological
Advancements
• All-electric and hybrid vehicles
• In-car entertainment (ICE) systems
• Collision Avoidance Systems
Technological Advances
• Cell Phones/Texting
• Technology
Distracted Driving
• Automaker production
• State regulatory environment
Autonomous Cars
Auto/Vehicle Trends
23
Cars of Today
• Forward collision warning
•Blind-spot detection
• Lane departure warning
•Adaptive cruise control
•Pedestrian detection
• Self-parking
24
Collisions by Area of Impact
Front Impact, 52%
Side Impact, 26%
Rear Impact, 5%
Other (e.g. Rollover), 17%
IIHS’s Accident Fatalities by Point of Impact
(2012)
Sources: http://www.iihs.org/iihs/topics/t/general-statistics/fatalityfacts/passenger-vehicles
http://www.iihs.org/iihs/topics/t/crash-avoidance-technologies/qanda
http://www.iihs.org/iihs/news/desktopnews/crash-avoidance-features-reduce-crashes-insurance-claims-study-shows-
autonomous-braking-and-adaptive-headlights-yield-biggest-benefits
Active FCW –
14% reductions
for PD
Passive
LDW –
negligible
increases
25
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Effects Not Always Clear
Sources:
http://www-nrd.nhtsa.dot.gov/Pubs/811182.PDF
http://www-nrd.nhtsa.dot.gov/Pubs/811486.pdf
Cars LTVs
ABS ESC ABS ESC
Fatalities 1% 23% -1% 20%
Accidents 6% 5% 8% 7%
Fatal rollovers -11% 72% -10% 64%
Fatal pedestrian 13% -9% 14% -11%
Analyzing the Effects
•Backup collision intervention
• Front center-mounted airbag
•Hands-free power lift-gate
• Inductive charging
•Push-button gear shifter
• Text messaging assistant
• Tactile-warning safety seat
• Zero-gravity seats
Source: “Eight ‘Killer New-Car App’ Features for 2013
http://www.forbes.com/pictures/ehmk45gkjk/backup-collision-intervention/#gallerycontent
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Gradual Adoption
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
ESC Standard ESC Standard or Optional
Percentage of Vehicle with ESC, by Model Year
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
ESC Standard ESC Standard or Optional
Percentage of Vehicle with ESC, by Calendar Year
Source: VINMASTER and ISO Loss Cost Filing Model Year Exhibits
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Distracted Driving
One Insurer’s Research Study
Fatal car crashes caused by:
• “Daydreaming” – 60 to 65%
•Using cell phone – 10 to 15%
•Distractions outside a vehicle – 5-10%
•Other passengers inside vehicle– 5-10%
•Using or reaching for something – 5-10%
•Other (including eating and drinking) – 0 to
5%
30
AAA and University of Utah Study on Hands-Free Systems
•Complexity of task
• Time on task
•Where to look
•Accuracy of system
•Quality of voice (no system)
http://newsroom.aaa.com/2014/10/imperfect-hands-free-systems-
causing-potentially-unsafe-driver-distractions/
31
Autonomous Vehicles
33
Autonomous Vehicles
•What is an Autonomous Vehicle?
– A vehicle that can generally be described as able
to guide itself from an origin point to destination
desired by an individual
34
Autonomous Vehicle……
• Reduce accidents
• More efficient use of resources
• Transportation for all
35
Anticipated Benefits of Autonomous Vehicles
• Google—”transportation for all”—designed so driver rarely needs to drive car
• Auto Manufacturers—driver will be able to take
control, as driving should continue to be fun
36
Differences in Philosophy
Individual yields near-full or partial control to
autonomous vehicle technology
Levels of Vehicle Automation
37
Level 0
No Automation
Level 1
Level 2
Level 3
Level 4
Combined
Function
Automation
e.g. adaptive
cruise
control and
lane center
Limited Self-
Driving
Automation
(e.g. drivers
can cede
safety-critical
functions)
Full Self-
Driving
Automation
Function-
Specific
Automation
(e.g. cruise
control)
Source: U.S. Department of Transportation's National Highway Traffic Safety Administration (NHTSA)
• Auto manufacturers today sell vehicles at
level 2 and 3, having features such as: •Adaptive cruise control
•Driver assist/collision avoidance systems
• Lane departure warning
• Blind spot detection
•Automatic parking
•Night vision
38
Where are we today?
• Google has target of 2020
• At least one auto manufacturer has stated desire
to sell a vehicle by 2020
• Aftermarket providers have started to talk about
product availability
39
Where are we headed?
• Cost of technology and infrastructure
• Interaction with existing fleet of vehicles on
road
• Legal environment for autonomous
cars/licensing to drive autonomous cars
• Safety and Security
40
Potential Issues
What do you think?
1. Self-driving car OR drive yourself?
2. Would you send your child to school in a self-
driving car -- Yes OR No?
3. What would you program a self-driving car to
hit first -- Another car OR Pedestrian?
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• Liability based on your actions
How you manage conditions
How attentive you are
How you maintain your vehicle
Proximate cause of accidents
Other drivers actions
42
Liability Consideration Today
•Who is the driver, driver characteristics and
attributes
•How does the driver drive—accidents and
violations/UBI
•Where does driver drive/garage car
•What kind of vehicle
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Rating/Underwriting the Risk Today
• Are these things safe—how do we know?
• Who will be held liable—driver, car manufacturer
or technology provider?
• Given a liability scenario--rate the policy
• Hacking risk/ Software updates…failure to
update/why
• Cost of technology
• Mixture of vehicles on the road
• Anticipated frequency
44
New Problems and Issues
• Tort or No-fault
• Product liability system
• rules of product liability can be exacting
• Alternative liability systems
• example is vaccine liability treatment
45
The Liability Issue—Who Pays?
• Typical product liability claim s
omanufacturing defects
odesign defects
o Failure to warn
46
Product Liability
•Analogous precedent exists oVaccine Injury Trust Fund
oSpecial fund established
oFunded by excise tax on purchase
oEstablished to reduce uncertainties around
product liability insurance cost
oUnique rules for payments of damages
Potential structure for Autonomous Vehicles?
47
Alternative Liability Systems
Underwriting Considerations
1. What additional information may be helpful?
2. Which coverage options are less relevant?
3. Which coverage options are more relevant?
4. What are potential coverage gaps on
traditional auto policy?
5. Is any of the risk more effectively insured
elsewhere?
Rating Considerations
1. Which rating elements become less relevant?
2. Which rating elements become more relevant?
3. Are there any new rating elements that may be appropriate?
Claims Settlement Considerations
1. What additional information might an adjuster
need?
2. How might an adjuster obtain access to this information?
3. Which parties may be liable for injuries and
damage?
4. Which parties might be subject to subrogation?
Sandee Perfetto
201-469-2705
William C. Schlager
201-469-2696
Contact Information
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