While the concept of smart homes is not new, the proliferation of household data from sensors and smart devices, plus advances in data analytics, present compelling opportunities for property and casualty insurers. Yet to reap the full benefits of smart homes, these companies must overcome fundamental challenges, including device costs, adoption rates, access to data, the lack of standardized communication protocols, and privacy and security concerns.

1. Next-Generation Insurance: Tapping
Into the Intelligence of Smart Homes
The proliferation of household data from sensors and smart
devices, plus advances in data analytics, present compelling
opportunities for property and casualty insurers to reduce
and mitigate losses, improve underwriting, enhance
the personalization of products and services, and enrich
customers’ digital experience.

2. 2 KEEP CHALLENG ING July 2015
Executive Summary
Most of us have experienced remote-controlled home lighting, voice-controlled
televisions and automatic garage door openers. The concept of smart homes —
houses equipped with smart devices and sensors that remotely control lighting,
heating and appliances through a smart phone or computer — is not new. The vision
of how these developments could influence our daily lives has been well depicted in
popular culture via television shows such as The Jetsons and films like The 6th Day.
Since the beginning of this century, consumers have recognized the value and
security provided by smart homes, and the ease of managing and monitoring home
appliances and devices at any time, from any location. With the dawn of the Internet
of Things (IoT), technologies like near field communications (NFC), wearables,
smartphones and the inexorable penetration of Wi-Fi and Bluetooth, an ever-
increasing number of people can now afford smart devices, and connect in ways
that were never before possible.
In our view, smart homes comprise three unique components: home appliances,
home security devices and home infrastructure. Built on the same principles as the
IoT, smart homes allow information related to a household and its contents to be
collected and disseminated, then put to use in a variety of ways. Today’s smart home
devices range from simple stand-alone sensors that detect changes in basements’
water levels, to highly sophisticated appliances and devices equipped with self-
learning and artificial-intelligence capabilities that are connected through the IoT
and can be controlled from anywhere in the world.
Smart homes’ utility and interconnectivity have sparked the interest of a large
number of players — from device manufacturers, service and integration framework
providers, to homeowners who are actively engaged in facilitating the use of smart
home environments.

3. NEXT-GENERATION INSURANCE: TAPPING INTO THE INTELLIGENCE OF SMART HOMES 3
However, the impact of smart homes extends well beyond traditional entities.
In fact, adoption has increased — piquing the interest of property and casualty
insurers at a time when carriers are struggling to remain profitable and
differentiate themselves in order to acquire and retain more customers. From
the perspective of these companies, the proliferation of data from sensors and
smart devices, as well as advances in data analytics, can help reduce and mitigate
losses and improve risk selection and pricing. All while refining personalized
products and services and enriching the digital experience of customers. For
carriers, these capabilities afford key opportunities to:
• Better understand risks, exposures and hazards.
• Enhance pricing accuracy through granular segmentation.
• Prevent and mitigate losses through targeted initiatives.
• Enhance claim adjudication through causality determination.
To reap the full benefits of smart homes, personal lines carriers must address
fundamental challenges, such as device costs, adoption rates, access to data, the
lack of standardized communication protocols, and privacy and security concerns.
However, with technology giants like Apple, Google and Samsung entering the
smart homes market and introducing universal frameworks such as HomeKit
and Brillo, there is huge growth potential for the smart homes industry. Personal
lines carriers would thus be well advised to collaborate with other players in this
ecosystem, and sharpen their analytical capabilities to improve underwriting,
pricing and loss prevention.
This white paper discusses the growing adoption of smart home technology, as
well as its implications for the personal lines insurance industry.

4. 4 KEEP CHALLENGING July 2015
The Evolution of the Smart Home
Smart homes have been around for some time. Among the first smart home
devices was the so-called “Kitchen Computer” offered by Neiman Marcus in 1969.
It weighed 100 pounds, and was sold at the sticker-shock price of approximately
$10,000.1
Since then, these devices have become more personalized, much less
expensive, easier to use and more lightweight — sparking the interest of consumers
with features like remote operation, intelligent learning and artificial intelligence.
These capabilities are expected to trigger a rapid increase in smart home adoption,
with the worldwide smart home market projected to more than double — to $71
billion by 2018 from approximately $33 billion two years ago.2
Figure 1 (next page) depicts the three unique components that comprise a smart
home solution: home appliances, home-security devices and home infrastructure —
all of which are smart, independent and intuitive, and equipped with sensors that
can be instrumented to detect, communicate and control tasks and activities.
Inside a Smart Home
Smart homes include three primary components: home appliances, home-security devices and home
infrastructure — each equipped to detect, communicate, and control tasks and activities.

5. NEXT-GENERATION INSURANCE: TAPPING INTO THE INTELLIGENCE OF SMART HOMES 5
As noted earlier, smart homes are a subset of a larger
technological wave known as the Internet of Things, or
IoT. The IoT allows businesses of all sizes to arm devices
with sensors that capture and share data on device
usage and user behavior via the Internet Protocol.
This allows companies to use IoT devices to deliver
new user experiences, continuously improve product
operation and optimize processes, among other things.
The IoT is expected to generate huge amounts of data,
which can be used to derive important insights from
different scenarios. As more devices are added to this
network, its capabilities, technological possibilities and
analyzable data will rapidly increase. Figure 2 (next
page) puts the IoT phenomena into context for the
smart home space. (For additional insight on our view
of smart homes and communication service providers,
please read “Unlocking the Smart Home.”)
Consumers’ interest in smart homes has grown expo-
nentially — inspiring large technology players to make
substantial investments. Chief among these:
• Apple has developed HomeKit, an iOS 8-based
framework for communicating and controlling
connected devices in smart homes.4
The framework
enables users to discover and configure HomeKit
accessories in their home, then create actions to
control those devices.
• Google has announced its own smart home
framework, Brillo,5
an operating system for the
IoT that will allow smart home devices to “talk” to
each other, the cloud, and your phone. Google also
acquired Nest,6
the maker of programmable and
self-learning Wi-Fi-enabled thermostats that permit
consumers to program and remotely control the
heating and cooling of their homes.
• Microsoft has partnered with Insteon to offer support
for products using its voice-activated personal
assistance app, Cortana.7
It also sells Insteon smart
home devices at its retail stores.8
• Samsung has acquired SmartThings,9
a startup that
makes smart home controllers.
• DirectTV has acquired LifeShield,10
which allows the
company to bundle security services with its core
video products.
Smart Home Components
Key Benefits
• Personalized experience and
convenience through self-learning.
• Loss prevention and mitigation
through sensor technology.
• Decrease in home energy costs by
15-20%.3
Key Benefits
• Control devices remotely — offering
convenience and ease of use.
• Sensors and remote monitoring
prevent home and appliance claims.
Key Benefits
• Ensures the safety and security of home
and occupants.
• Provides medical care and security to
the aged and disabled without requiring a
dedicated caregiver at home.
Programmable smart appliances
used in the home (e.g., washer,
dryer, refrigerator, crock pot).
Programmable devices for
protecting occupants, home
and perimeter.
Programmable, connected devices that
can monitor electrical wiring, water mains,
roofing and energy consumption (e.g.,
smart thermostats, pipe-leak sensors).
Key Industry Players
• Belkin • GE
• LG • Samsung
• Thermador • Whirlpool
Home Appliances
Home Security
Home Infrastructure
Key Industry Players
• Apple • Crestron
• Google • Honeywell
• Insteon • Tendril
• Tesla
Key Industry Players
• ADT • AT&T
• Comcast/Xfinity • FrontPoint Security
• LifeShield Security • Verizon
• Vivint
Figure 1

6. Factors Driving Smart Home Adoption
• Increased penetration and speed of broadband
technologies.
• Decreased cost of sensors, bluetooth, wireless
technologies — making smart homes more affordable.
• Increased functional capabilities of sensors, devices
and technologies.
• Increased demand for homes designed with smart
sensors and devices (e.g., IOTAS).
6 KEEP CHALLENGING July 2015
Home Appliances
Remotely controlled appliances
• Wi-Fi enabled and smartphone
connected appliances.
• Sensors to remotely monitor
appliances’ condition and contents.
Ability to self-learn and suggest
recommendations
• Notifications to customers about
issues based on current performance.
• Ability to automatically suggest items
to shopping cart based on prior
purchases and consumption.
Home Security
Home Infrastructure
CURRENT STATE FUTURE STATE
Video monitoring and proactive
event notification
• Remote/fingerprint/key-code
sensor-activated door latches.
• Alarms to indicate door/window-
lock status, high carbon dioxide
presence and break-ins.
Intelligent devices with better and
easier connectivity with each other
• Increased ability to control security
devices remotely, live video feeds, and
proactively initiate emergency
contact.
• Systems with artificial intelligence to
analyze, predict and act.
CURRENT STATE FUTURE STATE
Interconnected devices
• Devices to measure water
consumption, identify leaks and
inform users.
• Programmable and interconnected
thermostats.
Devices with artificial intelligence
and connectivity with smart grid
• Intelligent systems that regulate
usage based on self-learning and
utility costs.
• Infrastructure that triggers automat-
ed maintenance calls based on
indicators and weather predictions.
CURRENT STATE FUTURE STATE
Current and Future Features of
Smart Home Components
Figure 2
Smart Homes:
An Insurance Industry
Context
According to a 2014 press release from
Jupiter Research, the growth of the smart
home market is expected to approximately
double to $71 billion — presenting important
opportunities for homeowners insurers. Yet
to effectively participate and benefit from
this market, carriers must become knowl-
edgeable of the smart home ecosystem.
Two key dimensions for these companies to
understand are:
• Stakeholder involvement.
• Potential interactions among carriers and
stakeholders.
Stakeholder Involvement
• Device manufacturers such as Samsung,
Honeywell, LG and Google (smart products)
are vital foundational technology players
in the smart home space. Their products
span all categories of smart homes — home
appliances, home security and home
infrastructure. These manufacturers have
complete autonomy to determine the
standards to be followed in communicating
data produced by their devices.
• Service providers like ADT, AT&T and Leak
Defense offer services such as security
monitoring, energy management and leak-
detection management. The products used
in these services are manufactured by the
service provider or sourced from other
manufacturers. The range of services
provided varies, from elementary home
monitoring to total home integration
solutions.
• Integration framework providers such
as Apple (iOS Homekit) and Google (Brillo)
offer a unified mechanism for overcoming
the challenges of varied communication
standards used across devices. Integration
framework providers and device manufac-
turers collaborate to define and adopt a set
of common standards.
• Consumers purchase devices and utilize
products and services offered by device man-
ufacturers, service providers and integra-
tion framework providers. When it comes to
data management, consumers in the smart
homes ecosystem are usually governed by
the terms specified in service contracts.
Quick Take

7. NEXT-GENERATION INSURANCE: TAPPING INTO THE INTELLIGENCE OF SMART HOMES 7
CLAIMSLOSS PREVENTION
Real-time information from
homes will help carriers
understand hazardous
conditions and prevent/
mitigate losses:
• Sensors in plumbing systems
(e.g., pipes, control valves) can
detect freezes or leaks and shut
off main water supply to
minimize damages.
• Sensors can assess the
presence of mold, the stability
of walls and potential insulation
problems, and automatically
notify maintenance workers
when conditions fall below
desirable thresholds –
preventing fire and other
losses.
Data from sensors, photos
and videos will help carriers
better manage the claims
process by:
• Automating FNOL for
predefined conditions such as
break-ins, water leakage in
basement.
• Determining the cause of loss
and claims adjudication.
• Establishing a claims
preventative ecosystem to
improve customer engage-
ment.
PRICING
Access to perimeter and
interior home videos/photos
assist carriers in ascertaining
conditions such as:
• Presence of hazards (e.g.,
swimming pools, trampolines,
cracks on roofs and sidings).
• Presence of intruder, home
burglary alerts and pet security.
• Detection of morale hazards
(e.g., frequently forgetting to lock
garage doors, back doors or
windows).
• Presence of home business
vulnerabilities that significantly
increase liability exposures.
• Existence of emerging risks, such
as accommodation-sharing.
• Accurate classification of
insured as preferred risk, since
smart home devices reduce
the frequency and severity of
losses.
• Risk assessment based on
actual characteristics of the
home rather than to proxy
data.
• Access to personalized,
customizable products and
services.
• Modified expectations around
warranties and enhanced
coverages.
• Pricing discounts for adoption of
sensors and data sharing.
• More accurate pricing, since
carriers use precise data and
granular variables.
• More personalized and
attractive offers from homeown-
ers carriers.
• Improvement in safety and
security of property and contents.
• Access to resources that
monitor sensors/devices and
provide alerts, warnings and
proactive maintenance.
• Ability to react in a timely manner
– minimizing and preventing
losses.
• Improvement in claims
experience through reduced
claims-settlement time and
fairness in settlement.
• Improvement in customer
engagement through more
transparency and visibility to
claims process.
Access to new types of data,
such as wall and roof
temperature; humidity levels;
roofing; plumbing; HVAC
conditions, and mechanical
vibrations help carriers to:
• Predict homes’ structural
vulnerability and price risks
accordingly.
• Achieve better ROI on
marketing spend by targeting
and reaching desired customer
groups through atrractive
offers, thus improving customer
acquisition and retention.
UNDERWRITING
Access to smart homes
information will enable
carriers to introduce
differentiated products and
allied services such as:
• Personalized product, coverage
and service offerings with
attractive pricing that is
commensurate with risks.
• Services that coordinate with
different parties, such as
warranty and service providers,
in case of a loss – improving
revenues and customer
retention.
• Discounted replacement of
appliances/components after
specified time intervals, based
on smart home device data.
PRODUCT MANAGEMENT
& SERVICES
IMPACTONCARRIERSIMPACTONINSUREDS
Potential Interactions Among Carriers and Stakeholders
Information from various stakeholders in the smart home ecosystem can be invaluable to homeown-
ers carriers. The partnerships a carrier forms with these entities will determine the extent to which
they can collaborate and share data. For starters, data from smart home devices and sensors can be
utilized in numerous ways, and impact the selling and servicing of homeowners insurance. But before
this happens, carriers must assess and address issues such as data ownership and privacy regarding
individual stakeholders and customers, and establish partnerships and protocols that will enable them
to source and utilize this information appropriately.
Business Implications for
Homeowners Insurance Carriers
As smart home technology moves into the mainstream, it presents a number of opportunities for
homeowners carriers. The proliferation of data produced by smart home devices and sensors has the
potential to change the way carriers sell and service homeowners insurance products. Moreover, the
selling proposition will shift to how losses can be prevented, or at least mitigated. This includes risk
analysis based on real-time risk information delivered by instrumented home devices, as opposed to
today’s proxy risk indicators (e.g., credit scores, year of construction, age of roof). Data from smart
homes will provide important insights into the cause of loss, which in turn will aid insurance claims
investigations. In addition, the ability to monitor virtually every aspect of an insured’s home remotely —
and in real time — will make these properties a preferable risk for any carrier.
We believe smart home technology will also have a tremendous impact on insurance underwriting, loss
prevention and claims functions, some of which are outlined in Figure 3 below.
Impact of Smart Homes Across the Insurance Value Chain
Figure 3

8. 8 KEEP CHALLENGING July 2015
These examples clearly demonstrate the impact
of smart homes on homeowners carriers and the
insured across business functions. We believe that
the availability of new data, advancements in video,
image and data analytics, and the proliferation of
sensor technologies will empower carriers to improve
their profitability in today’s intensely competitive
market, similar to how other industries have realized
benefits through advancements in analytics.11
Figure
4 illustrates foundational thinking that can be applied
by carriers to determine and estimate the business
benefits of the smart homes market.
The Smart Homes Maturity
Spectrum
Smart homes technology is evolving at a rapid pace, and is being increasingly
adopted across the U.S. The extent of this phenomenon varies by region and home
type. Devices range from simple stand-alone sensors for detecting changes in
water levels in basements, to highly sophisticated technologies for managing all
home appliances and devices. The latter are embedded with self-learning capabili-
ties and artificial intelligence that share data via the Internet Protocol, and can be
controlled from anywhere in the world.
Advances in smart home technology have already caught the attention of
homeowners insurance carriers, some of whom are evaluating how best to use
the data generated from smart home devices. The ability to access data, along
with advancements in video, image and data analytics, will be a major impetus for
carriers to support this growing market. We believe that the maturity level of the
marketplace will evolve, and that the investments made today will pay off down the
road. Figure 5 on the next page illustrates a maturity framework, its key character-
istics, the levels of customer engagement, and the outcomes that can be attained
at each stage.
The selling proposition will shift
to how losses can be prevented,
or at least mitigated. This
includes risk analysis based
on real-time risk information
delivered by instrumented home
devices, as opposed to today’s
proxy risk indicators.
Targeted Offerings
• Number of customized offerings
and yields.
• Discounts on premiums.
Savings from Loss Prevention
• Number of hazards identified.
• Reduction in potential claims.
Reduced Claims Costs
• Reduction in claims leakage.
• Operational expense savings
(ALAE and ULAE).
Better Risk Selection
• Improvement in loss ratio.
• Increase in new business.
The Business Benefits of Smart Homes
Figure 4

9. NEXT-GENERATION INSURANCE: TAPPING INTO THE INTELLIGENCE OF SMART HOMES 9
• In the elementary stages of maturity carriers can provide discounts to insureds
who have installed smart appliances or home security solutions. These products
can have a positive impact on both claims frequency and severity — making
these risks safer than the average risks in the same class. For instance, installing
home monitoring solutions will decrease the frequency of burglary and theft-
related claims. Along similar lines, installing smart smoke detectors will reduce
the severity of fire-related claims, since homeowners and nearby fire stations
can be alerted immediately. Carriers should also partner with service providers
and target select homeowners insurance prospects with a superior risk profile.
• In the intermediate stages of maturity carriers should be more ingrained in
the smart home ecosystem, and establish commercial partnerships with service
and integration-framework providers. These relationships can offer carriers
detailed information from users of smart home services who opt to share the
data. Carriers can formulate hypotheses on the data and its impact on key
business processes (e.g., product and service design, underwriting, pricing, loss
prevention, claims). An example of such an hypothesis could pertain to water
pipes that serve water to the washing machine from external mains that have
shown a significantly higher probability to leak after eight years — leading to
substantial claims payouts. This scenario could be evaluated with data collected
from washer maintenance records and sensors in an IoT-instrumented washing
machine. With this information, carriers can then devise strategies to prevent
The Smart Homes Maturity Framework: A Carrier’s View
Figure 5
Elementary
• Discounts for homeowners who
use sensors, home security
or automation devices/services.
• Source homeowners insurance
leads through service providers.
• Customer education on benefits
of sharing data.
Intermediate
• Partnerships with smart
homes device/services
providers to source data.
• Leverage sensor data for
loss prevention, under-
writing and pricing.
Advanced
• Tailored insurance
products and services for
customer acquisition and
retention (e.g., monitoring
services).
• Complementary partner-
ships with device/service
providers to install smart
home solutions.

10. 10 KEEP CHALLENGING July 2015
and mitigate claims from washer pipe leaks,
which could be as simple as sending new
connection pipes to the insured every eight
years, or partnering with service providers and
local contractors to conduct routine service
and maintenance. This could help mitigate
and reduce claims at an exceptionally low cost,
which could lead to improved combined ratios.
Advanced analytics using data from sensors
will allow carriers to improve risk selection and
pricing accuracy, and more effectively manage
losses and claims
• In the advanced stages of maturity carriers can partner with service providers to
explore the rollout of smart home solutions. Similar to data-capture devices used
in usage-based auto insurance, these solutions can become a hub for collecting
a large set of data on smart homes. The volumes of data collected directly by
carriers or sourced via an ecosystem of partners can equip these companies with
the information they need to design new products and services. For example,
carriers can proactively monitor the data from sensors and, based on various
thresholds that are pre-defined, take different actions, such as notify the insured,
initiate claims first notice of loss (FNOL) and start replacement services — all in
a seamless manner.
For the most part, the insurance industry is in the early stages of maturity. Some
carriers already offer discounts for homes that are protected by security systems.
Home-security solution providers are also partnering with carriers to promote
their products to policyholders. For example, home security solution provider ADT12
has joined with State Farm to offer a home-monitoring technology, ADT Pulse, to
State Farm’s policyholders. Customers who sign up for the service are eligible for
discounted installation, lower monthly service fees and more competitive insurance
premiums. Allied Insurance13
provides premium discounts if insureds’ homes have
a professionally installed alarm system. Microsoft and American Family14
Insurance
are jointly exploring investment opportunities in startups focused on the smart
homes space.
Although carriers have not reached the stage where they can capture and analyze
the data from smart home devices, the possibility might not be far away, as
evidenced by USAA’s15
patent for a data device that records information such as
temperature, wind speed and humidity. Carriers are taking steps to support smart
homes through partnerships with various types of service providers (e.g., ADT, Leak
Defense) and move up the maturity curve.
Overcoming the Challenges of Smart Homes
The adoption of smart homes will likely be disruptive for carriers and insureds;
change comes with its own set of unique challenges. Overcoming concerns around
privacy; managing cyber-security issues; controlling adoption costs; addressing
fears about premium increases, and tackling data-collection problems through
common connectivity standards are among the key obstacles carriers will need to
surmount.
• Privacy and security: Among the major challenges carriers face is privacy;
specifically, regarding access to and usage of smart home data. Personal lines
auto carriers experienced similar challenges during the rollout of usage-based
insurance programs. (For more insights, read our white paper “The New Auto
Insurance Ecosystem: Telematics, Mobility and the Connected Car.”) Due to its
Although carriers have not
reached the stage where
they can capture and analyze
the data from smart home
devices, the possibility might
not be far away.

11. NEXT-GENERATION INSURANCE: TAPPING INTO THE INTELLIGENCE OF SMART HOMES 11
close proximity to consumers’ lives, smart home data (e.g., in-home security and
perimeter security camera footage) will face more scrutiny. A related but sepa-
rate concern is cyber theft of the data from smart homes, and taking measures
to protect that information. Carriers will also be challenged to educate the cus-
tomer, and clearly articulate the value proposition and incentives for insureds to
participate.
• Adoption costs: As carriers prepare to roll out homeowners insurance products
that leverage data from smart devices, the cost to replace existing devices with
smart sensors must be considered. Although smart devices have proliferated
across nearly every aspect of our professional and personal lives, their cost-ef-
fectiveness is still in question. For instance, the unit cost for a typical non-pro-
grammable thermostat (around $25) is still significantly lower when compared
with the cost of a smart thermostat (around $250). Over time, this delta will
narrow, but for now, insureds may have to pay a significant amount of money to
convert to smart devices, which are essential to reaping the benefits of the smart
home. Carriers will be challenged to share in some of
these conversion costs, or demonstrate how the costs
of conversion can be recouped in the long run through
insurance discounts and better pricing.
• Premium increases: Customers understand that
homeowners carriers will initially provide discounts
for installing smart home devices. However, as carriers
begin analyzing the data, customer concerns will turn
to long-term premium increases. This challenge can be
addressed through customer education and communi-
cation. Carriers need to emphasize that by leveraging
data for accurate pricing and loss prevention, custom-
ers would not be hit with premium increases over time,
but with premiums commensurate with risks.
• Interconnectivity and data standardization: Carriers will also face obstacles
when gathering and analyzing information generated by smart devices. The
emerging smart devices ecosystem is characterized by a number of manufactur-
ers and a lack of standardized communication protocols, similar to the issues
surrounding the IoT.16
This is further complicated by the fact that a number of
other players, such as telecom operators, utilities management companies and
technology providers operate within this environment. The absence of a commer-
cial relationship between these players could lead to a situation where standard
mechanisms for gathering data from a wide variety of smart devices is highly
inefficient, cost-wise. As a result, carriers could be challenged to maintain a
viable business model that leverages data from smart devices (i.e., carriers
would need to partner with all stakeholders in the ecosystem to obtain smart
home data, and cultivate the ability to analyze data across different standards
and formats). In addition, they would have to consider the required regulatory
approvals before gathering and analyzing data from smart homes.
Commercial Implications for Homeowners
Insurance Carriers
As the adoption of smart homes grows, we believe it will have an impact on the
loss ratio for homeowners policies. Based on 2013 data for homeowners’ policies,17
roughly 90% of losses are caused by fire and lightening, wind and hail, water
damage and freezing and theft (see Figure 6, next page). Data obtained from
smart home devices can help predict these events and either prevent them from
happening or reduce their impact when a loss occurs. We believe that with the
Carriers need to emphasize that
by leveraging data for accurate
pricing and loss prevention,
customers would not be hit with
premium increases over time, but
with premiums commensurate
with risks.

12. 12 KEEP CHALLENGING July 2015
availability of real-time sensor information and advanced analytics, a large number
of homeowners’ claims, such as those related to water damage, freezing pipes
bursting and roof damage from snow accumulation can be averted or mitigated. In
the long run, assuming a reduction of ~5% in loss ratio could be achieved with data
from smart homes, homeowners carriers could improve their overall bottom line by
around $4 billion.18
In a highly competitive industry where it is tough to grow profitably, the ability to
improve loss ratios offers carriers an incentive to invest and promote the adoption
of smart homes. Carriers can market their smart home solutions by offering
discounts; however, as more real-time information becomes available, the long-term
focus should shift to improving pricing accuracy and preventing losses.
We also believe that smart homes will open new avenues for premium growth. At
the same time, product liability and cyber-security risks associated with smart
home devices will increase along with the number of smart homes. Accordingly,
we believe this will drive carriers to develop innovative products and services to
address and mitigate these risks.
5
10
15
20
25
30
35
Fire &
Lightening
Wind &
Hail
Water &
Freezing
Theft Bodily Injury/
Death
Other
PercentageofLoss
Causes of Homeowners’ Losses
Figure 6
We believe that with the availability of real-time sensor
information and advanced analytics, a large number of
homeowners’ claims, such as those related to water
damage, freezing pipes bursting and roof damage from
snow accumulation, can be averted or mitigated.

13. NEXT-GENERATION INSURANCE: TAPPING INTO THE INTELLIGENCE OF SMART HOMES 13
In today’s highly commoditized insurance market, where competition for market
share is intense, a smart home strategy can help carriers gain market share by
offering preferred pricing commensurate with the risks of each customer — helping
to improve customer retention and acquisition. Early movers with the right part-
nership, the right infrastructure, and the right tools and techniques will gain con-
siderable advantage over others.
Moving Forward: An Action Plan for Homeowners
Insurance Carriers
Smart home devices and services have the potential to
vastly alter the way traditional carriers operate. Once the
challenges around standardized communication, privacy
and data security breaches are overcome, we expect more
carriers to participate in the smart homes movement. We
believe that this is the time for insurance carriers to start
thinking, strategizing and preparing for the evolution
of smart homes. We recommend a three-phase adoption
process that carriers should follow (see Figure 7).
• Examine: Carriers need to study the smart home
ecosystem and develop a viable go-to-market strat-
egy. The various partnerships required with device
manufacturers, service organizations and integra-
tion framework providers should be established (e.g.,
ADT’s partnership with State Farm to offer State
Farm’s customers deals on home automation and
security services, as well as homeowners’ policy
discounts) along with necessary regulatory approvals to
leverage the data collected from sensors. In addition, car-
riers should formulate hypotheses for the pilot strategy
to enable the gathering and analysis of data. The formal-
ization of the strategy — beginning with regulatory filings
and a robust business case and implementation roadmap
based on pilot findings — are critical in this phase.
• Enter: In this stage, carriers need to define and
implement the target operating model by introduc-
ing smart homes as part of their digital strategy. The
operating model’s components — people, processes,
technologies and partners — need to be assessed.
In addition, new roles must be defined, existing
processes (e.g., product management, underwriting,
risk assessment, loss prevention and claims) reengi-
neered; core application capabilities and infrastructure
enhanced (to extract, transform, store and analyze huge
amounts of data in varying formats), and partnerships
with various stakeholders in the ecosystem legally set
in place. Before entering the market, carriers need to
ensure that guidelines on the use of smart home data
are well defined. Consideration must also be given to warranty provisions that
insureds need to adhere to, as well as the regularity of data collection.
• Enhance: As part of this phase, carriers need to continually monitor the
state of their smart homes strategy, and design an appropriate change-
management framework to incorporate any modifications. Carriers must also
develop and roll out educational material for prospects and the insured. This
Figure 7
Examine
Enter
Enhance
1
2
3
• Define smart home strategy.
• Identify potential partners.
• Design pilot products/services
strategy.
• Develop business case and
implementation roadmap.
• Define pilot phase rollout.
• Develop underwriting and pricing
guidelines.
• Formulate partnership.
• Define target operating model.
• Institutionalize target
operating model changes.
• Analyze and continuously improvise
strategy and business case.
• Define change management
strategy.
• Educate prospects/insured on
benefits of participation through
multiple channels (e.g., agent/
direct).
The Smart Home Adoption Process

14. 14 KEEP CHALLENGING July 2015
should include the benefits of participation, as well as how products and services
differ from current offerings. Given the challenges associated with adopting us-
age-based insurance initiatives in personal auto, articulating and communicating
a smart homes-based insurance value proposition and revitalizing the defined
strategy is critical.
The increasing technological intensity of business is driving significant acceptance
of the Internet of Things in general and smart homes in particular. Underpinning
this trend is an information-rich ecosystem that homeowners carriers can leverage
for risk-selection, pricing and loss-control initiatives. Commercially, this approach
presents opportunities for reducing loss-related costs, as well as developing
product and service innovations that can support and improve customer retention
and acquisition. As carriers begin this journey and tackle the associated challenges,
they need to remember that early adoption will be key, and that those who best
articulate the benefits to customers stand to win in the long run.
Note: All company names, trademarks, copyrights and products referenced in this
white paper are the property of their respective owners. No company referenced in
this white paper sponsored this white paper or the contents thereof.
Footnotes
1
“Before the iPad, There Was the Honeywell Kitchen Computer,” wired.com, November, 2012. http://www.wired.com/2012/11/kitch-
en-computer/.
2
Press Release: “Smart Home Revenues to reach $71 billion by 2018, Juniper Research Finds,” Juniper Research, February, 2014.
http://www.juniperresearch.com/viewpressrelease.php?pr=429.
3
“Vision of Smart Home: The Role of Mobile in the Home of the Future,” GSMA, March, 2012. http://www.gsma.com/connectedliv-
ing/wp-content/uploads/2012/03/vision20of20smart20home20report.pdf.
4
Press Release: “Apple Releases iOS 8 SDK With Over 4,000 New APIs,” Apple, June, 2014. http://www.apple.com/pr/
library/2014/06/02Apple-Releases-iOS-8-SDK-With-Over-4-000-New-APIs.html.
5
“Google Unveils Brillo, Its Answer for Smartifying Your Home,” wired.com, May, 2015. http://www.wired.com/2015/05/google-
unveils-brillo-answer-smartifying-home/.
6
“Google Acquires Smart Thermostat Maker Nest for $3.2 Billion,” Forbes, January, 2014. http://www.forbes.com/sites/aarontil-
ley/2014/01/13/google-acquires-nest-for-3-2-billion/.
7
“Microsoft’s Cortana can now control Insteon smart home devices,” digitaltrends.com, September, 2014. http://www.digitaltrends.
com/home/microsoft-cortana-insteon-smart-home/#ixzz3O6TD0KTK.
8
“Microsoft stores now stocking Insteon home-automation kits,” zdnet.com, June, 2014. http://www.zdnet.com/article/microsoft-
stores-now-stocking-insteon-home-automation-kits/.
9
“SAMSUNG to Acquire SmartThings, Leading Open Platform for the Internet of Things,” samsung.com, August, 2014. http://www.
samsung.com/us/news/23607/.
10
“DIRECTV gets into security, acquires LifeShield,” securitysystemsnews.com, June, 2013. http://www.securitysystemsnews.com/
article/directv-gets-security-acquires-lifeshield/.
11
“Big Data: The Management Revolution.” hbr.org, October, 2012. https://hbr.org/2012/10/big-data-the-management-revolution/
ar/1/.
12
“ADT partners with State Farm to Promote Pulse,” securitysystemsnews.com, December, 2013. http://www.securitysystemsnews.
com/blog/adt-partners-state-farm-promote-pulse.
13
“Home Security Systems from Allied Insurance,” Allied Insurance. https://www.alliedinsurance.com/home-security-system.jsp.
14
Press Release: “Microsoft and American Family Insurance launch startup accelerator focused on home automation,” Microsoft,
June, 2014. http://news.microsoft.com/2014/06/17/microsoft-and-american-family-insurance-launch-startup-accelerator-focused-
on-home-automation/.

15. NEXT-GENERATION INSURANCE: TAPPING INTO THE INTELLIGENCE OF SMART HOMES 15
15
“First vehicle-monitoring devices, now this.” Insure.com, December, 2012.
http://www.insure.com/home-insurance/usaa-house-monitoring-device.html.
16
“Poll: Standardization Biggest Challenge in IoT,” lightreading.com, February, 2015. http://www.lightread-
ing.com/iot/iot-strategies/poll-standardization-biggest-challenge-in-iot/a/d-id/714062.
17
“Homeowners and Renters Insurance,” iii.org.
http://www.iii.org/fact-statistic/homeowners-and-renters-insurance.
18
“NAIC Report,” naic.org, August, 2014. http://www.naic.org/state_report_cards/report_card_us.pdf.
About the Authors
Agil Francis is a Principal/Director with Cognizant Business Consulting’s Insurance
Practice. Agil has 10-plus years of management consulting experience in the
insurance industry, where he has advised senior client executives on strategy,
operations and technology issues across sales/marketing, distribution, underwrit-
ing and claims. Agil can be reached at Agil.Francis@cognizant.com | LinkedIn: http://
www.linkedin.com/pub/agil-francis/37/225/863.
Gauthaman Krishnamurthy is a Manager within Cognizant Business Consulting’s
Insurance Practice. Gauthaman specializes in the P&C industry, and has nine years
of business consulting and program management experience, during which he has
advised clients on operations and technology issues across distribution, under-
writing and policy administration. Gauthaman can be reached at Gauthaman.
Krishnamurthy@cognizant.com | LinkedIn: https://www.linkedin.com/pub/gautha-
man-krishnamurthy-ains-api/4/1b/b83.
Manish Kumar is a Manager within Cognizant Business Consulting’s Insurance
Practice. He has nine years of business consulting and program management
experience in the insurance industry. Manish specializes in P&C insurance and can
be reached at Manish.Kumar9@cognizant.com | LinkedIn: https://www.linkedin.
com/pub/manish-kumar/4/216/89a.
Aniket Kute, CPCU, AU, API, AINS is a Senior Consultant within Cognizant Business
Consulting’s Insurance Practice. He has seven years of business consulting
experience, advising clients in North America, the UK and Asia-Pacific geographies.
Aniket specializes in P&C insurance, and can be reached at Aniket.Kute@cognizant.
com | LinkedIn: https://www.linkedin.com/in/AniketKute.
Sumeet Kaul is a Senior Consultant within Cognizant Business Consulting’s
Insurance Practice. He has nine years of experience in diverse consulting, advisory
and sales roles. He has executed multiple consulting engagements and successfully
pursued several strategic sales opportunities in the U.S., the UK and Asia-Pacific
regions. He can be reached at Sumeet.Kaul@cognizant.com | LinkedIn: https://www.
linkedin.com/in/sumeetkaul.

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