Recent research on consumers’ decision making in insurance services, especially regarding Home Appliance Insurance is not as frequent as it should be. The London School of Economics, Ipsos and VVA Europe, prepared in May 2017 a study for the European Commission on consumers’ decision making in insurance services from a behavioural economics perspective. It makes for some interesting, if slightly unsurprising, reading.
For example, most people surveyed did not consider it worthwhile to purchase add-on insurance for a new kitchen, especially if it would only cover furniture, as the risks associated with this type of product were perceived as not being too high. A minority responded that this type of insurance could be potentially worthwhile if it covered appliances or special appliance. On the other hand, even if this were the case, its necessity was questioned. Some of the participants in Sweden argued that kitchen appliances often come with long guarantees when they are purchased, and that, when combined with the home insurance, they should be sufficiently covered. Among Slovakian participants, some argued that a kitchen would be covered by home content insurance too (European Commission, 2017, p. 98).
The two main situations in which add-on insurance covering kitchen furniture was
considered interesting were: if the kitchen was very expensive, as well as fragile
(Slovakia), and, if the insurance would cover any errors made by the builders (Sweden).
“If I have an expensive kitchen with a lot of glass… some premium quality… maybe yes.” (Woman, 48, lower education, Bratislava)
“Many aspects that can go wrong. If the add-on insurance does not cost too
much, it can be worth it to pay extra” (Man, 49, higher education, Stockholm)
(2017, p. 98)
Deloitte reports that major insurers in the USA and in Europe are offering major incentives for customers who use ‘smart’ home appliances. For example, insurers are taking ‘concrete steps in partnering with Smart Home appliance manufacturers’:
|American Family Insurance and Liberty Mutual (USA).||Both are offering discounts for owners of Nest Protect smoke detectors.|
|State Farm (USA)||Their customers can benefit from discounts on products from ADTPulse and Canary (OEM specialized in security) and on insurance products.|
|American Family Insurance (USA)||A partnership with Ring (smart doorbell producer) to decrease deductibles in case of burglary/theft.|
|BNP Paribas Cardif Italy (EU)||They have combined mobile and telematics to help customers protect their homes through “Homebox” by detecting fire, smoke, flooding, and electricity failure and then alerting both the customer and the operation centre, which immediately activates assistance services.|
(Monitor Deloitte, 2017, p. 6)
As a result of these partnerships between insurers and manufacturers and the kinds of incentives they offer, these will be a major nudge for customers’ decision-making habits when it comes to the kinds of appliances they have in their homes and the policies they take out.
To make concrete what is implicit and suggested above, it is within the abilities of smart appliances/devices to offer data related to risk monitoring to customers, advanced risk detection, finely tuned incentive-driven pricing, greater early (even predictive) loss detection and prevention, and additional home-centred services.
While ‘smart’ devices today are arguably only as good as human maintenance and monitoring, newer devices coming onto the market represent a significant shift: from receiving remote commands as we do today to much more evolved features in the future, which are likely to include the ability to directly react to external stimuli and take the appropriate preventive actions. This has the potential to depress home appliance insurance payments. This represents good news for the policyholders, and potentially insurers too, who will have – with the emerging Internet of Things (IoT) in appliances — a greater pool of enhanced real-world data to make calls on risk and its management.
For example, the washing machine of 2020 is generally capable of detecting leaks and stopping before too much harm is done. In the near future, we can expect appliances to be able to detect changes in performance and suggest (and maybe contact technicians) the necessary maintenance.
While there are privacy concerns that need to be unpacked too, factoring in consumers’ behavioural habits from their appliances into their credit scoring and premium calculations means there is little doubt of rewards with tangible benefits, including more accurate financial customisation for individual policies.
Marketed appropriately, the promises of savings and other benefits including improved safety detection could overcome the initial hesitation certain demographics have in buying these products, especially among the older generation, who are currently less likely to purchase Smart Home appliances.