Usage-based home insurance

Could a telematics-style, usage-based insurance model make an impact on the UK home insurance market?

We believe customers seeking to monitor their homes with devices demonstrate responsible behaviour. As a result, we will be offering these customers reduced pricing on their home insurance policy
Michael Robon, Liberty Mutual Insurance (USA)

Telematics or 'black box' insurance has been a part of the UK car insurance market since 2008 and its prevalence only seems likely to grow in the years to come.

Insurers like the technology because they can monitor an individual driver's actual behaviour behind the wheel and base their premiums on this, rather than on assumptions regarding things like age and experience.

This may seem to be of very little relevance to the home insurance market, but the fact is that technology is intruding into more and more areas of life and so-called usage-based insurance (UBI) is on the rise.

In 2015, UBI became a part of the home insurance equation in the USA and it seems likely that similar developments will come to the UK in the near future.House

How does UBI work on home insurance?

The model for future developments in the home insurance market would seem most likely to be based on insurers offering discounts based on the smart technology that homeowners have in their property.

Devices could monitor a property and send appropriate alerts to the homeowner and/or outside agencies such as the fire service. Examples of the sort of things that could be checked would be:

  • Broken-down boilers to help negate the risk of burst pipes
  • Water leaks
  • Camera feeds from a property to the owners' smartphone, with recordings saved to the cloud
  • Malfunctioning fridges and freezers
  • Burglar, carbon monoxide and smoke alarms
  • A system that helps avoid insurance claims can benefit all parties
  • Whether alarms have working batteries

Telematics car insurance is considered particularly beneficial for safe, young drivers and a similar thing may happen with homes.

Youngsters who are not familiar with the demands of property maintenance may find automated warnings and alerts particularly useful.

A more pro-active approach can also be taken; for example, insurers may look for a central heating system that can be operated remotely, meaning it can be turned on even if the homeowner is away from their property on a freezing night.

A system that helps avoid insurance claims can benefit all parties, meaning insurers won't have to pay out on expensive claims and homeowners can avoid resultant hassle, loss of no claims discounts and future premium hikes.Telematics car insurance

A usage-based insurance policy would almost inevitably come with exclusions, such as homeowners having to act on particular types of alert or risk invalidating their policy.

What's more, usage-based policies tend to involve the sacrifice of personal information to companies, data that has the potential to be used by advertisers and other organisations.

However, the monitoring of things such as boilers and smoke alarms is arguably less intrusive than keeping an electronic eye on a driver's every wheel turn and may, perhaps, prove more readily acceptable to the consumer.

Consumers should be aware, though, that the monitoring of things like how long they're away from home could impact on the price they pay for insurance; the provider may, for example, use the information to estimate the likelihood of a burglary.

How does 'telematics' home insurance work in the USA?

In June 2015 the Google-owned home appliance company Nest announced a link up with two large US insurance companies, American Family Insurance and Liberty Mutual.

Working under a scheme called 'Nest Safety Rewards', the insurers said they would offer discounts of up to 5% to policyholders based on their Nest device data.

The insurers will ask for data ensuring that sensors, batteries and wi-fi are operating correctly.

"These technologies provide the opportunity for consumers to reduce the chance of harm to their family and home by detecting events that trigger alerts on their smartphones, wherever they may be," said Michael Robon of Liberty Mutual Insurance.

"We believe customers seeking to monitor their homes with devices demonstrate responsible behaviour. As a result, we will be offering these customers reduced pricing on their home insurance policy."

By Sean Davies