What to Know About Insuring Your Smart Home

by Daniel Griffin, President of Wesfair Agency, CIC, CPA

Connected devices and the internet of things are giving us access to our homes in many new ways. These new eyes and ears can help us to monitor the risks our homes are exposed to, 24/7. The traditional ways in which we secure and interact with our homes (and the appliances within them) have evolved. As they do, the insurance companies have slowly begun to find ways to add new credits to homeowners insurance policies.

Insurance companies have always looked for a central station to monitor fire and burglar alarms; these are the two big discounts afforded to insureds. Pay a company to come to your house, install the system, and they monitor it 24/7. The insurer sees that as a deterrent from fire and a thief making off with your possessions.

The new homeowner is paying monthly bills for many connected services in their home, many even more complex than these legacy monitored systems. We’re getting used to our refrigerators monitoring our food, thermostats monitoring out temperatures, and it’s all available 24/7 for free! Why pay for central monitoring of our security and fire systems? Better yet, why not just cut out the middlemen and have it go right to the authorities?

These consumer trends have led to some innovative new solutions. There are new security systems that are still centrally monitored, but powered and made easier by our wireless devices. Tech firms have created integrated solutions to combine security cameras, alarms, deadbolts, water detection, thermostats, smoke alarms, CO2 detectors in one app. You can monitor them all from your phone, and make changes as you need to. Many of these new systems are available for a monthly fee less than what we would pay for these legacy systems. Because of that, we’re seeing the numbers of these systems jump.

So this brings the common question from clients: I have a Nest system, can I get a credit? And the answer is… sometimes. The insurance companies are starting to wake up to this new tech and starting to see the data come in. Remember that insurance companies rely on data to support their underwriting discounts. If you have the ability to see or get a message when there is a fire in your home, or a burglar… will that reduce your exposure to loss? If you’re at the movies and put your phone on silent, who’s watching the fire alarm? Who’s there to surprise your home invader by talking through your doorbell?

In the very near future, these devices will connect seamlessly to our local responders. An alert will go to police stations and fire departments to send for help when triggered. More advanced automation will help to monitor as well, helping to discern between raccoons and burglars. When the insurance companies can better see the link between this new tech and reductions in loss, expect them to offer major incentives to integrate these systems.

This connected nature of the home also presents new risks to homeowners. The same technology that lets you control that thermostat can be hacked. And if it is, the homeowner can suffer a real world loss from an outside attack. It’s one thing to reset your password or report a stolen credit card number. It’s another thing to have your pipes freeze because someone shut off the heat. As such, for the first time, we’ve seen carriers start to offer cyber liability and even social engineering coverage for homeowners.

The implications of the new smart home present, at the same time, great potential and new risks. Trust your insurance professional to help evaluate and respond to the changing insurance marketplace.