It is a common trick: leave the lights on when you go away and potential burglars will think you are still at home and look for easier opportunities elsewhere. Some people take additional precautions and put the lights on a timer, to switch on and off at preset moments. Simple timers, though, can be easy to predict.
What if your lighting system went a step further and learned to mimic your movements around the house? When rooms are empty, the lights would continue to turn on and off much as they would on any normal day. For homeowners, such a system might simply be a fun new gadget — something to boast about in front of the neighbours. For insurers, however, it is a route to fewer burglaries and lower claims costs.
Intelligent lighting systems are just one example of the new technology that could have a huge impact on property risk management and insurance. Although many in the insurance industry think that it is behind other sectors when it comes to technology, new systems are already beginning to have a big impact.
“Over the last five years technology has made the homeowner market a safer place to be,” says Joanne Musselle, chief underwriting officer at insurer Hiscox. She cites advances from water shut-off systems to more widespread use of alarms for helping both to reduce the chance of a claim being made and limiting the size of a claim if something does go wrong.
“People are more alert to risk mitigation,” she says, although she adds that there is room for improvement when it comes to making full use of the increased amount of data that household devices produce. “Eventually, you’ll have one smart device that controls everything. It’s really exciting. The ability to stay connected to homes from anywhere in the world will help with risk mitigation.”
It is not just insurers who should benefit. “Discounting on premiums for people who have these systems is coming to market,” says Ms Musselle. “It is already happening in the US.”
Technology is also changing the way insurers look at commercial property risk. This is particularly true when assessing what could go wrong in new buildings, and what it would cost to fix the damage.
“I’ve been in the industry since 1980 and it has probably changed more in the last five years than in the [previous 30],” says John Roberts, head of the construction industry practice at insurance broker Willis Towers Watson.
“The insurance industry has to respond to changes in technology, and changes in how building is being done,” he adds. “There is an increasing use of new materials such as self-healing concrete and photovoltaic glass.”
The problem with these materials is partly that they are more expensive than traditional materials, so can add to the costs of insuring a building.
Other types of technology could have the opposite effect. “There is also a growing use of 3D printing to make parts of a building or even whole blocks. That will drastically reduce cost and wastage but all of a sudden the big risk factor might be the machine itself or the material going into the machine,” says Mr Roberts. “Underwriters need to be aware of the technology that is being used and what the cause and effect might be in the case of a loss.”
Understanding the cause and effect of loss is among the most significant ways in which technology is changing property insurance. While new gadgets and materials can help, industry insiders say that the most important new development is the use of better data analytics. This can help the insurers to price risk more accurately, which means lower costs for some customers, but higher costs for others.
Analytics has already had a big impact in commercial property insurance. “There has been an emergence of catastrophe rating tools from [risk modelling providers] RMS and AIR,” says Simon Morgan, head of property at Hiscox in London.
“These models have levelled the playing field. It is harder for an underwriter to differentiate himself from people with no experience.”
That has had a knock-on effect as everyone else involved, such as intermediaries and customers, develops a better understanding of the risks. “The brokers also know how to price the business, and so do the clients. Pricing is almost see-through,” says Mr Morgan.
The tools have led to big changes in the way insurance is funded. Traditionally property owners approached brokers, who in turn went to insurance companies to buy cover. But with better data analytics, outsiders have been able to offer insurance.
“The technology and tools have allowed brokers and fund managers to package up pools of insurance and make it look like any other financial product. It takes the air of mystery away from taking an insurance bet,” says Mr Morgan of Hiscox.
The result has been the development of so-called insurance-linked securities, which allow big investors such as pension funds to put some of their capital to work backing insurance risks and, they hope, make a profit on it. Relatively straightforward policies, such as property catastrophe insurance, are fertile ground for ILS products because the risks are well known and well modelled.
New capital has helped push down prices, particularly for property insurance and reinsurance — the insurance that insurers themselves buy.
According to data from reinsurance broker Willis Re, like-for-like prices for some categories of property reinsurance in the US have fallen by a third since 2012. Since then they have continued to drop.
Number of engineers AIG has worldwide to assess risk
That, in turn, has led insurers to look for other ways to attract business, from changing the excess levels that they ask customers to cover before the insurance pays out, to changing the contract terms and conditions to make them more favourable to customers.
“Clients are looking for cover to be as broad as it can be,” says Clarissa Franks, head of property placement at insurance broker Marsh. “They are looking for an extension of cover to include, for example, losses at client or supplier locations, or terror cover, which is beyond the traditional scope of policies.”
For some insurers, the response to both falling prices and widely available, industry-standard analytics tools has been to try to get to know their end customers better.
AIG has resorted to the relatively traditional process of sending its own field engineers to clients’ properties to assess risk. “We’ve gone from 150 to around 600 engineers worldwide,” says Joe Trotti, head of property and speciality risk at AIG Europe. “The engagement is on-site with the client to identify perils and work with them on how to mitigate the risk.”
The company’s own data analytics also play a big role. “We’ve built an analytics centre in Bangalore with 250 engineers who gather data from the field. Through those insights we refine our underwriting and improve our own products and business. It allows [us] to be more precise,” says Mr Trotti. “We’ll look at our own data in comparison to the industry models. In some cases we’ll have better insights.”
That allows AIG to make more accurate decisions about its underwriting, he says. “The conversation [with the client] is about the risk and not about the market. That is really important as now you are in an insurance market that is very client-centric.”
Even in an industry that is using technology more and more, it seems, there is still room for the personal touch.