Our lives are starting to be ruled by devices, wearables and other items that are in one way or another connected to the internet and in some cases between each other. We are now at the beginning of a journey which is still to be shaped by technology, practical applications and privacy and security implications of the Internet of Things and interconnectivity. One of the sectors that has started to grow in these last years is connected insurance, in particular motor telematics insurance which uses black boxes in order to gather driving behavior data in order to offer customized insurance policies and better loyalty schemes to clients. This ongoing and successful experience in telematics has served as a benchmark for other areas of connected insurance like home.

1. By Andrea Silvello and Celia Clinciu
Our lives are starting to be ruled by devices – devices, that are connected to each other and also, the
internet. At this juncture, we’re standing at the beginning of a journey which will be shaped by technology,
interconnectivity, privacy and security implications of the Internet of Things (IoT). In this context, Connected
insurance is a sector that has seen tremendous growth.
Essentially a motor telematics insurance, it uses black boxes to gather behavioural data to offer customised
insurance policies and better loyalty schemes to clients. This ongoing and successful experience in
telematics is serving as a benchmark for other areas of connected insurance – our homes
Source:
Connected Insurance Observatory
From a connected home to a smart home
According to CNET:
“A home that is equipped with network-connected products (i.e., “smart products,” connected via Wi-Fi,
Bluetooth or similar protocols) for controlling, automating and optimising functions such as temperature,

2. lighting, security, safety or entertainment, either remotely by a phone, tablet, computer or a separate system
within the home itself.”
The home must have a smart security feature or a smart temperature feature in addition to a reliable internet
connection. It then must include at least two features from a list of smart options, including appliances,
entertainment, lighting, outdoor sensors, and safety detectors.” So is a connected home and a smart home the
same thing?
In my opinion, a “connected home” is the first and essential step towards a “smart home”. Your home can
be “connected” if you have the proper wiring or wireless infrastructure that enables devices to communicate
with each other and with the Internet or Cloud.
For reaching a “smart home” status, you need a system capable of coordinating all connected devices to
work as a single unit, based on one’s needs and wants. Furthermore, a smart home that is truly useful would
also tend to other needs like health and wellness and baby monitoring, besides security and consumption
monitoring. Where is the smart home market now?
The smart home market right now
According to CBInsights, the overall IoT (Internet of Things) funding is projected to grow by 4% until the
end of 2016. Contrary to expectations, China and India do not stand out on the international IoT investment
map while US, Canada and UK lead the way.
The cost of sensors has more than halved in the past 10 years. Thereby, reaching an average 60 cents per
unit, enabling IoT to proliferate. So while the general trend is positive and the total amount of smart home
investment is projected to increase, the peak that was reached in 2014, is yet to be surpassed.
How a smart home works. (Photo Courtesy: How It Works Daily)

3. Nevertheless, the average smart home industry funding rate in 2016 will be more than the 2015 rate. This
means that fewer companies will receive more funding. One can see it as a sign of stabilisation. Investors
are now analysing more and are choosing projects with real potential.
Interestingly, the smart home trend seems to favour international markets compared to the US one. Deal
shares to international startups have seen a significant rise from 28% to 38% in this last year.
How has the market grown?
Scenario management allows a homeowner to create scenarios for different parts of the home, and
programme them based on time of day and preference. This, in order to create a certain ambiance, or
control the security system using a smartphone or Ipad that communicates with the home gateway.
Taking the case of Italy, startups face difficulties in getting important financing compared to international
IoT startups. The Digital Innovation Observatory indicates that 66% of startups have not received any major
investment in 2015. Only 15% have seen investments of over 1M. This scenario has forced some Italian IoT
stratups to look for solutions elsewhere.
Security management in a ‘smart home’
Home security is an incipient aspect. According to a paper by Ovum, its adoption never skyrocketed even
when the technology had been around for decades. However, it must be noted that the Internet of Things
(IoT) went mainstream only recently after users got physical proof of how it works. The public is starting to
grasp the potential of IoT and interconnectivity and inevitably has started assessing it.
While home security is an abstract subject, wearing a smart watch that keeps track of your daily physical
activity and communicates with your smartphone and computer is more immediate.
A research done by the Connected Insurance Observatory gives us a glimpse of how the Italian market is
doing. 22% of the currently uninsured Italian households is inclined to buy insurance if it were a
“connected” one. Even if it’s sector specific information and concerns insurance carriers, it is a strong
indicator that there is real interest amongst consumers to install connected devices within their households.
Another confirmation comes from the survey conducted by IoT Observatory “Il mercato dell’internet of
things in Italia”. It shows a 33% increase in 2015 of the number of Italian consumers who would buy smart
home devices. Nevertheless, the adoption rate is still low with only 1 in 5 consumers owning at least one
home connected device. And, the intention to buy is a medium-term option (next 3 years) rather than short
term.
What are the barriers to adoption?
The main issues standing in the way of a smooth evolution of the smart home is security and privacy. There
is heterogeneity in options available and the adoption costs are high for the average homeowner.
It’s very common to buy several devices for the home thinking they will work together. Alas, many do not
think before deciding which solutions to install. Surveys done by Oservatori.net in Italy show that the main
reason people did not own home connected devices was because it was expensive. 29% of respondents
indicated that they do not consider the technology to be mature enough at this stage; while 28% declared
that they are not familiar with the products, or do not know where to buy them.

4. This then leaves room for rethinking the communication strategy for those who sell smart home solutions in
Italy.
Attacking the internet of things. (Photo Courtesy: The Last Dog Watch)
What are the risks of having a smart home?
While this may be appealing for digital enthusiasts, it’s terrifying for several others. And, they are not
completely wrong to be hesitant. Lately, the risks associated with a more connected future are becoming
obvious.
An interconnected world is one where home appliance and security system will exchange information with
your mobile, computer, wearables and your car. It’s needless to point out the recent examples of how a
car’s electric system was hacked to test the degree of control. This, as you might expect, is scary.
A home is a less hazardous environment but the threat is still real. The previous definition of the smart
home makes this scenario plausible- all items and devices communicating with each other and with the
internet. This is like giving hackers a readymade deal.
Cyber risk was one of the main debated topics at the Insurance IoT USA Summit in Chicago. Dean Weber,
CTO at Mocana, made a great case for why the public, regulators and device manufacturers should analyze
the issue with utmost care. For example, the October 21st attack on a relatively unknown American internet
infrastructure company which managed to temporarily block websites like Twitter, Netflix, Spotify and
Airbnb.
Endnote
Even though such threats are real it is important to keep in mind that we live in exceptional times. The
opportunities for innovation are huge. Regulators and insurance companies should be working to find
solutions that will allow us to use this wonderful technology by minimising the risks.

5. International events are powerful tools. They put together players from different fields who present
solutions to problems they encounter within their line of business. They can help facilitate a productive
discussion in the process. It is one thing to work independently and it is completely different if you have all
relevant players at the same table within a context favourable to discussion and confrontation.
Great solutions come out of sessions where you have “great minds” brainstorming and provoking each
other with the support of regulators. Ultimately, whether one is an insurance company CEO, a startup-er or
a customer who wants to set up a connected or smart home – one needs to know what they are facing and
be prepared.
Andrea Silvello is the Founder and Managing Director of Business Support Spa, a Strategy Consulting &
Financial Advisory boutique focused on SME’s in Italy.
Celia Carina Clinciu is a Digital Strategy and Innovation Consultant at Business Support Spa.