Smart Homes and Smart Cars: The Impact of Technology on Personal Lines

October 13, 2015

1

Agenda

1. Connected Homes

2. Building Characteristics

3. Auto/Vehicle Trends

2

Connected Homes

What is the “Internet of things”?

• Everyday objects connected to the Internet

participating together in a system

• The convergence of traditional connected

devices and “smart” appliances

What is the “connected home”?

A home equipped with electronic devices, such as sensors, appliances, and

lighting and heating applications, that are tied to the Internet and controlled

remotely via interfaces such as phones or computers

Hello, Smart Home | Part 2

http://www.youtube.com/watch?

v=9qKA9JDxaaw

5

The connected-home market is evolving rapidly

$0

$20

$80

$60

$40

$100

$120

Current and predicted revenue from connected-home-

related hardware, services, and installation $140

2012 2013 2014 2015 2016 2017 2018 2019

Glo

ba

l re

ve

nu

e (

in

bill

ion

s)

Google bought Nest

for $3.2 billion in

January and opened

software interfaces

in June

Apple announced

HomeKit platform,

promising a single

service to synch

devices

Source: Forbes 7/30/2014

Source: Strategy Analytics

6

29%

52%**

78%

86%

90%

0% 10% 20% 30% 40% 50%

Source: Icontrol Networks, 2014 State of the Smart Home

60% 70% 80% 90% 100%

Automate/regulate

home entertainment

Pet monitoring

Energy management

Property loss protection

Personal/family

security/monitoring

Top reasons for using a smart home system*

** percentage of pet owners *Survey sample is evenly divided

7

between males and females;

limited to ages 25+ and

homeowners with household

income of $50K+ or renters with household income of $40K+

The “cool factor” vs. “cold hard cash”

Source: Icontrol Networks, 2014 State of the Smart Home

51%

32%

would pay $500 for

a connected home

are willing to

spend between

$500 and $3,000

*Survey sample is evenly divided between males and

females; limited to ages 25+ and homeowners with

household income of $50K+ or renters with household

income of $40K+

8

Key differences between auto and home telematics

Factor Auto Home

9

Ultimate utility Insurance Multiple

Insurance and non-

insurance related

Multiple

Customer benefit Insurance related

Implementation Standard

Device Standard OBD-II/one

location

Multiple

Data delivery Cellular Various/consumer’s ISP

Homeowners telematics: Data possibilities

Usage • Patterns of energy and water consumption • Water running when no occupants home

• Which rooms are used, when, and for how

long?

Occupants • Occupants: number, frequency of access • Number of smokers; frequency and time of day of

smoke

• Number of connected devices

Contents • Movement of contents in and out of

house • Major appliance location

• Sprinkler system detection

Residence • Roof age and condition; material; weight

load • Wind speed and barometric pressure

• Gas leak detection

10

Making sense of the data

Technology is changing the way we live our lives. Analysts

estimate

Unwieldy and unstructured

Understanding data from multiple sensors and how it correlates to future loss is

a moving target that requires expertise.

? will be connected to the Internet by

2018. Source: Icontrol Networks, 2014 State of the Smart Home

Venture capital is available for this market

and

start-ups pop up daily.

enhanced economies of scale and a wave of innovative solutions.

Due to microsensor evolution in smart phones, there

are

9 billion devices

Predicting smart home market

leaders

Variety of devices

Infinite sensor applications

Big data

Collection and use of big data are growing exponentially, yet

a small percentage of useful data is analyzed.

11

Security and privacy concerns

• Many devices are general purpose computers

that can be hacked

• Controllers are vulnerable too

• Data and video are subject to security

breaches, potentially increasing litigation and

reputational risks

• Examples to date:

– Reset codes for door locks

– Lights, cameras, hijacked

12

Regulation

• Regulation is evolving

• Access to data may require

policyholder permission

• Protecting privacy in relation to

data collection efforts

• Start with obvious and nonintrusive sensors

13

Potential Insurance applications for connected-home technology

Obvious

• Monitor potential causes of loss to head off a damage-causing event (example: leaking pipe)

• Correlate connected-home data with loss experience to develop more refined rates

• Adverse selection considerations

• Develop a “lived in” seasonal residence product

Not so obvious

• All possible interactions with sensor data and losses

• Strengthen connections by addressing policyholder

concerns for safety, peace of mind, and pocketbook in

new ways

!

14

?

Where do insurers start?

Top family sensor applications

85% Fire detection

64% Carbon monoxide

detection

50% Gas leak detection

and shutoff

Source: Icontrol Networks, 2014 State of the Smart Home

15

Partnership considerations

• Develop strategic alliances that will

help you see connections and

understand the data

• Remain open to multiple

partnerships as shifts in technology

market leadership occur

• Look at R & D as an ongoing

investment to reduce losses and

build stronger policyholder

relationships

16

Key takeaways

Connected-home technology creates utility for

consumers that extends beyond insurance

Potential complexities and threat of

adverse selection, suggest benefit to get

involved early

The market is evolving faster than insurers

are entering this space, and many may have

difficulty catching up

Consider developing partnerships

to help you see connections and

understand the data so you can

strategize regarding future use

Take a long-term view toward product,

profitability, and relationship possibilities

1

2

3

4

5 20

Building Characteristics

Building Characteristics Influence Losses

• Uses specific building/property

features

– Construction style and material

– Roof age and material

– Square footage, lot size, number of

bedrooms/baths/stories

– Heating and cooling systems

– Garage and basement

information

– Etc.

Building Characteristics Example

Both houses are in the same ZIP code with a $300K ITV,

same year of construction, and located within the same PPC

3,000-sq-foot, 4-bed, 3.5-bath colonial

with a brick exterior and an attached 2-car garage 2,500-sq-foot, 3-bed, 2.0-bath ranch

with wood siding and a 2-car carport

Building Characteristics Summary

Multiple stories have higher water non-weather losses

3.5 baths and two stories lead to higher water claims

Attached garage lowers fire and wind exposure

Fireplace increases hail exposure

Brick construction lowers weather claims

• Hail: 1.258

• Water non-weather: 1.309

• Liability: 0.859

• Fire: 0.908

All-peril factor:

1.165

Larger floor plan has higher weather exposures

Fewer bathrooms decreases non-weather water

Pool increases wind and liability exposure

Composite shingles lower weather claims

Single story increases theft and vandalism

• Hail: 0.605

• Water non-weather: 0.905

• Liability: 1.162

• Fire: 1.373

All-peril factor:

0.950

Technological

Advancements

• All-electric and hybrid vehicles

• In-car entertainment (ICE) systems

• Collision Avoidance Systems

Technological Advances

• Cell Phones/Texting

• Technology

Distracted Driving

• Automaker production

• State regulatory environment

Autonomous Cars

Auto/Vehicle Trends

23

Cars of Today

• Forward collision warning

•Blind-spot detection

• Lane departure warning

•Adaptive cruise control

•Pedestrian detection

• Self-parking

24

Collisions by Area of Impact

Front Impact, 52%

Side Impact, 26%

Rear Impact, 5%

Other (e.g. Rollover), 17%

IIHS’s Accident Fatalities by Point of Impact

(2012)

Sources: http://www.iihs.org/iihs/topics/t/general-statistics/fatalityfacts/passenger-vehicles

http://www.iihs.org/iihs/topics/t/crash-avoidance-technologies/qanda

http://www.iihs.org/iihs/news/desktopnews/crash-avoidance-features-reduce-crashes-insurance-claims-study-shows-

autonomous-braking-and-adaptive-headlights-yield-biggest-benefits

Active FCW –

14% reductions

for PD

Passive

LDW –

negligible

increases

25

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Effects Not Always Clear

Sources:

http://www-nrd.nhtsa.dot.gov/Pubs/811182.PDF

http://www-nrd.nhtsa.dot.gov/Pubs/811486.pdf

Cars LTVs

ABS ESC ABS ESC

Fatalities 1% 23% -1% 20%

Accidents 6% 5% 8% 7%

Fatal rollovers -11% 72% -10% 64%

Fatal pedestrian 13% -9% 14% -11%

Analyzing the Effects

•Backup collision intervention

• Front center-mounted airbag

•Hands-free power lift-gate

• Inductive charging

•Push-button gear shifter

• Text messaging assistant

• Tactile-warning safety seat

• Zero-gravity seats

Source: “Eight ‘Killer New-Car App’ Features for 2013

http://www.forbes.com/pictures/ehmk45gkjk/backup-collision-intervention/#gallerycontent

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Gradual Adoption

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

ESC Standard ESC Standard or Optional

Percentage of Vehicle with ESC, by Model Year

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

ESC Standard ESC Standard or Optional

Percentage of Vehicle with ESC, by Calendar Year

Source: VINMASTER and ISO Loss Cost Filing Model Year Exhibits

28

Distracted Driving

One Insurer’s Research Study

Fatal car crashes caused by:

• “Daydreaming” – 60 to 65%

•Using cell phone – 10 to 15%

•Distractions outside a vehicle – 5-10%

•Other passengers inside vehicle– 5-10%

•Using or reaching for something – 5-10%

•Other (including eating and drinking) – 0 to

5%

30

AAA and University of Utah Study on Hands-Free Systems

•Complexity of task

• Time on task

•Where to look

•Accuracy of system

•Quality of voice (no system)

http://newsroom.aaa.com/2014/10/imperfect-hands-free-systems-

causing-potentially-unsafe-driver-distractions/

31

Autonomous Vehicles

33

Autonomous Vehicles

•What is an Autonomous Vehicle?

– A vehicle that can generally be described as able

to guide itself from an origin point to destination

desired by an individual

34

Autonomous Vehicle……

• Reduce accidents

• More efficient use of resources

• Transportation for all

35

Anticipated Benefits of Autonomous Vehicles

• Google—”transportation for all”—designed so driver rarely needs to drive car

• Auto Manufacturers—driver will be able to take

control, as driving should continue to be fun

36

Differences in Philosophy

Individual yields near-full or partial control to

autonomous vehicle technology

Levels of Vehicle Automation

37

Level 0

No Automation

Level 1

Level 2

Level 3

Level 4

Combined

Function

Automation

e.g. adaptive

cruise

control and

lane center

Limited Self-

Driving

Automation

(e.g. drivers

can cede

safety-critical

functions)

Full Self-

Driving

Automation

Function-

Specific

Automation

(e.g. cruise

control)

Source: U.S. Department of Transportation's National Highway Traffic Safety Administration (NHTSA)

• Auto manufacturers today sell vehicles at

level 2 and 3, having features such as: •Adaptive cruise control

•Driver assist/collision avoidance systems

• Lane departure warning

• Blind spot detection

•Automatic parking

•Night vision

38

Where are we today?

• Google has target of 2020

• At least one auto manufacturer has stated desire

to sell a vehicle by 2020

• Aftermarket providers have started to talk about

product availability

39

Where are we headed?

• Cost of technology and infrastructure

• Interaction with existing fleet of vehicles on

road

• Legal environment for autonomous

cars/licensing to drive autonomous cars

• Safety and Security

40

Potential Issues

What do you think?

1. Self-driving car OR drive yourself?

2. Would you send your child to school in a self-

driving car -- Yes OR No?

3. What would you program a self-driving car to

hit first -- Another car OR Pedestrian?

41

• Liability based on your actions

How you manage conditions

How attentive you are

How you maintain your vehicle

Proximate cause of accidents

Other drivers actions

42

Liability Consideration Today

•Who is the driver, driver characteristics and

attributes

•How does the driver drive—accidents and

violations/UBI

•Where does driver drive/garage car

•What kind of vehicle

43

Rating/Underwriting the Risk Today

• Are these things safe—how do we know?

• Who will be held liable—driver, car manufacturer

or technology provider?

• Given a liability scenario--rate the policy

• Hacking risk/ Software updates…failure to

update/why

• Cost of technology

• Mixture of vehicles on the road

• Anticipated frequency

44

New Problems and Issues

• Tort or No-fault

• Product liability system

• rules of product liability can be exacting

• Alternative liability systems

• example is vaccine liability treatment

45

The Liability Issue—Who Pays?

• Typical product liability claim s

omanufacturing defects

odesign defects

o Failure to warn

46

Product Liability

•Analogous precedent exists oVaccine Injury Trust Fund

oSpecial fund established

oFunded by excise tax on purchase

oEstablished to reduce uncertainties around

product liability insurance cost

oUnique rules for payments of damages

Potential structure for Autonomous Vehicles?

47

Alternative Liability Systems

Underwriting Considerations

1. What additional information may be helpful?

2. Which coverage options are less relevant?

3. Which coverage options are more relevant?

4. What are potential coverage gaps on

traditional auto policy?

5. Is any of the risk more effectively insured

elsewhere?

Rating Considerations

1. Which rating elements become less relevant?

2. Which rating elements become more relevant?

3. Are there any new rating elements that may be appropriate?

Claims Settlement Considerations

1. What additional information might an adjuster

need?

2. How might an adjuster obtain access to this information?

3. Which parties may be liable for injuries and

damage?

4. Which parties might be subject to subrogation?

Sandee Perfetto

sperfetto@iso.com

201-469-2705

William C. Schlager

wschlager@iso.com

201-469-2696

Contact Information

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