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Analytics Magazine

Can sensors and analytics lower your home insurance premiums?


sensors and analytics lower your home insurance premiumsFew businesses’ profits and losses are determined by how good their prediction models are. The insurance business is one of the exceptions, an industry where analytics is not just a “nice to have” to improve performance, but a necessity. Claims forecasting, which drives premiums, are at the heart of what actuaries do. Given the critical nature of these models, insurance companies have been voracious customers of data, models, tools and processes.

New technologies and analytics drive newer forms of service. Take the car insurance industry, for example, where usage-based insurance models depend on the latest telematics technologies. In the usage model, car insurance coverage and service is based on data collected from the vehicle, including speed and time-of-day information, historic riskiness of the road and driving actions along with distance or time traveled. The tradeoff for consumers allowing themselves to be tracked is lower car insurance.

Can similar technologies and resulting analytics be applied to the home insurance market?

Traditionally, home insurance premiums depend on a number of variables such as what year the house was built, how many bedrooms it has, how far it is from the nearest fire station and dozens of other factors. Now imagine your home insurance company is able to install cheap sensors in your home to test your column and wall strength, how well you are looking after your house and other factors. Furthermore, they are able to take the minute-by-minute sensor data from your house and perform analytics on that information and comparing that data with your neighbor, street, town and state.

In that world, your insurance company can use the data to make you a better homeowner and give you “best practice” tips based on the data to reduce accidents and lower your claims and therefore your overall premium.

Consider the following example scenario for reducing a common home insurance claim related to water damage. Typical claims resulting from water damage cost about $7,000. Sensors could play a key role in reducing those claims. When sensors are installed in a home, homeowners and insurance companies can be alerted to a broken pipe or plumbing issues. The alert can also be routed to the local plumber and fixed before the water damage is extensive.

This “fix it before it is broken” approach can reduce claims for a homeowner and in turn lower home insurance premiums. After trial tests, the insurance company could come up with an ideal customer profile and offer discounts to customers in a similar cohort. These safer homeowners could put more pressure on the rest of the market to play catch up and install similar devices.

However, these benefits would need to be balanced with consumers’ concerns of being tracked. The last thing that consumers want is a Big Brother Orwellian nightmare on their hands. Home insurance companies may need to take a step-by-step approach and address these concerns before utilizing advanced technologies and analytics to lower your home insurance.

Source: vHomeInsurance (


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