Smart devices can make the insurance biz proactive, not reactive

Insurance companies are looking for ways to reduce the amount of money they have to pay out on claims, and one promising way to reduce that risk is through connected security and home automation devices. In this week’s podcast I spoke with Dan Reed, managing director at American Family Ventures, the venture capital arm of American Family Insurance. AmFam as it is known, has 10 million policies and offers home, auto and life insurance.

Reed shared with me a bit about how he’s looking for investments in the space and also how the insurance industry is thinking about the smart home and about data privacy. “For the insurance industry in general [IoT] is essentially an extension of smoke detectors and seat belts. These are inexpensive products that can help keep people safe,” Reed said. “And from a strategic point of view, as a a strategic participant in the venture industry it offers the opportunity for a new type of engagement with our policyholders.”

He added that this changes the model of the insurance industry from a reactive to a proactive model and added that he believes that the industry not only has an economic incentive but also a moral incentive help prevent bad things from happening to its customers. Within that context he thinks the insurance industry will subsidize devices such as water leak sensors or connected smoke detectors much like they already offer discounts to homeowners that add alarm systems to their homes.

But once insurance companies start subsidizing connected devices, what claim will they have on the data those devices generate? Connected smoke detectors can offer not just low battery warnings or smoke alarm notifications, but can share details about people in the home or even temperature data. A connected security camera could share much more. On cars, data might include speed and location data that the insurer might want for setting pricing, but also might have to provide in case of an accident or legal demand.

When asked, Reed explained a program that AmFam implemented in 2007 that was aimed at teenage drivers and reducing their accident rates. The program put a DriveCam in cars that activated when a car accelerated or braked too quickly and then sent the footage to the cloud where independent analysts and the teen’s parents could see the images. The analysts rated the footage to make sure the program was helping reduce accidents and the parents saw the footage so they could talk to their kids about the choices they were making behind the wheel.

The program was opt-in, and it did help change driving habits and cut accidents. Reed said that program exemplifies how his company thinks about privacy and user data, and how he hopes the industry thinks about it as well.

“We are very conscious of this notion of Big Brother and of privacy within your own home or your own vehicle, and I think it is something that the insurance industry and the startups in this space have to be very cognizant of and very transparent about,” he said. “They have to tell users how they are going to use the information that is coming off of these devices and right from the start take a benevolent position about the partnerships you have with your policyholders. I think the worst thing that could happen is that a company would collect information that the policyholders don’t know about or approve of. I think that would be a major setback to the deployment of some of these safety technologies.”

For more from Reed or to hear Kevin Tofel and I respond to some of our reader questions, take a listen to this week’s podcast from earlier this week. It’s a long show, but chock full of good stuff.

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