In uncertain times, it tends to become much more challenging to rely on what is happening now as a reliable indicator of what could happen in the future. This is true in the global insurance industry. The Covid-19 pandemic has created doubt and disruption for both insurers and policyholders, heavily impacting a sector that is so often relied upon for stability and security. Long-term recovery for the industry post-pandemic is certainly achievable – however, there are signs that the coronavirus is proving costly in the short term.
Earlier this year, Lloyd’s of London forecasted record losses for the global insurance sector, with potentially up to $110 billion of underwriting losses in 2020 alone as a result of the pandemic. The full effects of the disruption are yet to be seen, given that insurers will still be paying out on a wide range of policies to support those affected by the pandemic well into the next year and beyond. Because of this, it will be important for insurers to review current operational practices carefully to identify propositions that might enable them to chart a clearer course through the coming uncertainty. Fortunately, for those in the personal lines space, the rise of telematics-based insurance cover could offer a valuable opportunity to manage short-term losses and mitigate long-term risk.
The coronavirus pandemic has created a range of new challenges for personal lines property and casualty insurers and their policyholders by breaking down the normally discrete barriers between different facets of people’s everyday lives. Huge numbers now live, work and relax all in the same place – usually the home. Where people are not working remotely, they are often not working at all. As a result, millions who would not usually spend such an overwhelming majority of time inside domestic properties are doing just that – working, educating children, shopping, and shielding their families from the virus.
The upshot is that protecting properties from disaster has now taken on an even greater importance. If someone’s home was their castle pre-pandemic, they will now want to treat it as a fortress. This is good news for personal lines insurers, as policies will likely increase as a result. But with policy costs also set to rise to offset underwriting losses – and with the pandemic likely to tighten the purse strings for many – there is a high likelihood that we will also see a considerable increase in customer scrutiny of policies and the cost-benefit of any potential cover.
For this reason, it is now a good idea for personal lines property insurers to consider the benefits of smart telematics. Already common in the vehicle insurance space, smart home telematics are increasingly being seen as a serious proposition to help insurers manage losses in the short term and mitigate risk and uncertainty in the longer term. For policyholders, what may once have been a ‘nice to have’ could soon be seen as a necessity.
Telematics products can drive significant value and deliver excellent underwriting results for home insurers by allowing them to gain far more granular insights into customer policies and their individual level of risk. Traditionally, insurers have operated via a reactive model, responding to incidents after the fact and pricing risk and premiums based on the average homeowner. With telematics products, insurers can harness individual customer data to enable a much more proactive and personalised approach and deliver better, more bespoke policies.
Proactive monitoring, enabled by IoT-powered devices such as leak detectors and cameras, drive value for insurers by allowing them to pre-empt the sorts of problems that drive the costliest claims. Data collected by active LeakBot devices in domestic properties has discovered that around 43% of British homes are affected by hidden water leaks, which are consistently one of the largest drivers of home insurance costs and claims worldwide. One small, hidden leak left undetected can soon develop and cause significant damage and costs, but these costs and future risk can both be substantially mitigated if detected early on by a smart home telematics device.
Smart telematics can help diversified insurers offset the financial impact across their books due to Covid-19. In a market so often driven by price, they can also serve as a significant point of difference in the mind of the consumer. Insurers can offer customers much greater control over the cost of their premiums by encouraging them to demonstrate responsible customer behaviour through telematics devices – a particularly important point in the personal lines space, given how people like to feel in charge of the things they own.
Empowering policyholders to take a greater stake in their own cover could mean savings on premiums in the long run. But the real beneficiary is the insurer, who can leverage telematics tools to better price and mitigate risk across their portfolios, and thereby offer more cost-effective cover to customers. Reducing costs will always seem an attractive prospect for both insurers and customers alike. Although the coronavirus could yet prove costly for personal lines insurers, smart technology solutions might help them to mitigate its long-term impact.
By Craig Foster, CEO LeakBot