Digital Conqueror - Logo
Close this search box.

How Smart Homes Are Expected to Influence Home Insurance

Smart home technology is exploding, and is likely only to grow. In 2020, the market for smart home technology was valued at over 79 billion dollars, with a projected growth of 25% by 2026. The advancement of wireless technology, combined with an increased focus on home security and efficiency, will continue to drive this market well into the future. But what does smart home technology mean for your insurance rates?

What Are Smart Homes?

First, let’s establish the definition of a smart home. A smart home is basically a larger-scale implementation of the Internet of Things (IoT), the ever-growing landscape of appliances and devices connected to the internet.

A smart home allows a homeowner to remotely control things like lights, thermostats, and other devices via a wireless connection, often using an app via smartphone or tablet. A user can even control devices like televisions, cameras, smart appliances like refrigerators, and more.

These controls can be scheduled, and many appliances can “learn” schedules and user behaviors — for example, lights or other devices might automatically turn on (or off) at certain times of day based on past user behavior.

How Smart Homes May Influence Home Insurance

With such a strong focus on security and protection, it shouldn’t come as a surprise that insurance companies are interested in the developments surrounding smart home technology. A home less vulnerable to disasters and burglary would almost certainly have an effect on insurance assessments.

There are several ways smart home tech might influence homeowner’s insurance. For example:

  • Devices like smart doorbells, door cameras, and automated security systems can dramatically prevent the likelihood of burglary.
  • Smart smoke detectors can reduce the possibility of false alarm and alert homeowners even if they’re not home, allowing them to contact emergency services and potentially avoid a catastrophic fire.
  • Automated water valves with built-in sensors could detect anomalies such as water leaks before they cause more serious structural damage.
  • Sensors for water damage and humidity could help prevent conditions that would lead to costly mold or water damage.

This, combined with the more sophisticated and accurate data provided by smart home tech, means insurance underwriters can make a more informed decision about the risks a home carries — a wealth of data that simply wasn’t available before the advent of IoT technology.

What Are the Risks of Smart Homes?

Now that we’ve seen what a potential boons are for homeowners and insurance underwriters alike, let’s look at a few of the potential pitfalls.

Among the main reasons for the widespread and growing adoption of smart home technology: security and efficiency. A smart home can save you money by automating energy-conserving measures like turning off lights, heat, and other devices when they’re not needed. Devices like smart doorbells and other security systems can automatically alert homeowners to an intrusion or other emergency incident. Many homeowners embrace smart home technology specifically for the purposes of beefing up their home security

But as with any internet-connected device, there are security risks involved. Smart home devices can be hacked, and software bugs and holes in security are an ongoing problem for both manufacturers and end users. The problem can be exacerbated by poor security hygiene such as weak (or no) passwords on devices. These risks can be further magnified if an insurance company becomes an early adopter of certain smart home technologies which might not have all the security bugs ironed out yet.

Another potential drawback of smart homes: privacy concerns. Now more than ever, consumers are wary of things like identity theft, data breaches, and the unwanted availability of their personal data. Homeowners may not necessarily be comfortable with sharing large amounts of data with insurers, especially given the possibility of security issues.

Can a Smart Home Lower Insurance Rates?

So what’s the bottom line for homeowners? Can smart home technology lower your premiums? The answer is yes — although it largely depends on choosing the best home insurance for your needs.

One of the most prominent ways in which smart home devices can lower your premiums: water detection. Water leaks are a classic and costly problem for homeowners, and one of the most common home insurance claims in the business. To help keep claims under control, many insurers are offering premium discounts to homeowners who install devices such as water detection sensors and automatic shutoffs in their house. This not only reduces headache and improves peace of mind for homeowners, it also reduces the risk of a costly water damage claim.

The same goes for other detection devices like those listed above — the safer and more secure a home, the lower the chance of a costly claim.

Not every insurance company has caught up with the developments in IoT and smart home technology — but as that technology grows cheaper and more common, insurers will have to find ways of incentivizing homeowners to adopt those technologies, most likely by offering them better rates.