When we think about connected homes there is a tendency to focus on consumer devices and products that dominate most of the technology press coverage. This could be smart light bulbs that turn on as we approach home- aided by the GPS data generated by our smart phones or the networked fridge that orders you milk when you are running low. However this is only one narrow conception of what IoT can do for us and in the housing context arguably the part that will be slowest to realise.
Where IoT can make a serious impact immediately is in the nitty-gritty of housing management- reducing the cost of delivering housing services through providing landlords with data on their assets. An interesting and relatively unexplored application for IoT in housing is risk management. Risk management is not particularly shiny or exciting and doesn’t lend itself to the evangelism afforded to the likes of Google’s nest or Samsung’s Smart Things but it could save social landlords a lot of money and reduce the property damage suffered by residents in the process.
So how can IoT mitigate risks in social housing?
Leaving aside fire damage and flooding due to adverse weather, one of the most destructive forces in the home is escaping water. Leaks from pipes, taps, washing machines and other appliances can cause serious and costly damage for both a landlord and tenant. The effects are further enhanced where multiple flats are located in a single block.
Using a few low cost connected water sensors placed in areas of the home where leaks are likely such as under dishwashers and baths- alerts can be generated when escaped water is detected. These alerts inform the landlord and resident and crucially automatically switch off the water supply using an actuated stop-cock therefore preventing any further significant damage.
The Business Case in theory…
Preventing water damage therefore in theory could reduce landlord’s liabilities for damage to buildings and contents.
All landlords are covered by some form of buildings insurances and landlord’s liability insurance. These premiums are often 6 figure sums and clearly housing providers under increasing financial pressure would like to reduce these costs if possible. At the same time insurance companies want to reduce moral hazard by incentivising behaviour that reduces the likelihood of making a claim.
Water sensors could be the connected device that makes this happen. In return for housing providers installing devices in homes insurance companies can offer lower premiums in the knowledge that they are less exposed to the risk of water damage. In theory the risk reduction could be so great that, just as with in-car black box insurance packages, it is worth the insurer paying for the hardware. What’s more residents are less likely to suffer from damage to processions and their homes.
So why are we not doing this right now?!?!
CHC surveyed a number of housing providers to try to understand exactly how the claims procedure works in practice and if IoT really could reduce premiums. The data we collected surprised us.
The housing providers surveyed had building insurance and landlord’s liabilities insurance excess of between £5000 - £10,000 this means that any damage under this threshold is dealt with without making a claim. The housing providers also told us that although escaped water was one of the most common causes of damage many incidents caused damage below this threshold. From an insurance company perspective these lower end cases of water damage don’t figure on their books and so don’t provide a compelling case for adjusting premiums. Where water damage is of significant severity an insurance company would be forced to pay out but it appears from our data that these are not the most common claims. We also have the issue of claims from leaseholders who generally pay a lower excess on claims, these claims contribute a significant amount to total claims on a policy but here managing the risk is almost completely out of the hands of landlords. Arguably housing providers are therefore paying for a disproportionate amount of the riskiness that leaseholders pose in order to be able to offer them lower excesses.
Time to disrupt the insurance market?
Right now it appears that housing providers are effectively self-insuring themselves against the cost of excess on claims, keeping a reserve of funds available to deal with small scale instances of water damage. With connected technology it might be possible to reduce this cost through reducing the risk of having to repair water damage that doesn’t breach the policy excess level.
The same technology could also reduce the number and severity of the big claims insurers pay out on as water leaks are stopped before causing serious damage. From here there it may be possible to see the insurance landscape changing- Insurance companies should begin to see the sector as less risky, for taking proactive steps to prevent water damage and reducing the number of claims made. If brokered correctly this could lead to insurance companies either reducing excess charges to match the shifting risk profile or reducing insurance premiums.
Both are clearly good for landlords and great for residents who are likely to face less disruption and see their processions better protected from water damage.
The barriers to implementation
The cost of dealing with low value water damage is borne by landlords so reducing the severity of this type of damage could offer substantial savings to landlords. There is also inherent value in protecting residents and their personal property. But as it stands it is unclear if either of these offer an adequate short term return on investment in the hardware.
Where we might be able to achieve value is in using utilising a set of hardware for multiple housing management functions. So a smart boiler monitoring system could also function as a relay for a leak sensor, as we add additional functionality in IoT the marginal cost of each feature reduces making a leak sensor suddenly more viable.
Using data to demonstrate our risk mitigation
Through a connected system that prevents water damage we will begin to have an accurate record of each time a sensor is activated and this can be analysed along with data on our repair costs. As IoT provides us with better data on our assets it should be possible to make the case to insurance companies that housing providers are becoming less risky and thus can be insured at a lower cost.
While it would be nice to work with insurance companies to implement these solutions from the beginning, high excesses are already acting as incentive or push for housing providers to reduce risk themselves. Utilising a low cost IoT solution to do this should form a key tool in achieving this and in the long run could become a signal to the insurance market that housing providers are low risk policy holders.