Replacement cost must be considered when determining potential effect of smart home technology

OTTAWA – Smart home technology offers significant promise in getting the number of losses down, but replacement costs must also be considered to capture a complete picture of its potential effect, Bob Tisdale, president and chief operating officer of Pembridge Insurance Company, suggested in Ottawa Thursday.

The news is good from a frequency of loss standpoint, Tisdale noted of smart home technology during the CEO Panel at the Insurance Brokers Association of Ontario’s 94^th Annual Convention in Ottawa.

But as houses become smarter, he emphasized that replacement cost must be considered. Although there will be fewer losses, when a loss does occur, “it will be more expensive because that technology has also got to be replaced.”

Tisdale cited airbags as an example of the need to look at replacement cost. While working with his company in Chicago, “we were writing these cars off because the airbag cost more than the car to replace it,” he relayed.

“We need to think of that as we bring technologies in, but certainly they will be tremendously beneficial in getting the number of losses down (in homes),” Tisdale told session attendees.

“If we think that installing an alarm reduces the exposure, what about installing technology that tells you before your water heater is going to burst, tells you when your heating system went down or that somebody should go home before the pipes freeze,” asked Greg Somerville, president and chief executive officer of Aviva Canada.

Jean-François Blais, president of Intact Insurance, pointed to pipeline technology and the use of sensors to measure pressure and prevent leakage. Blais’s hope is that the same can be done for oil tanks, water tanks and even pipes in the home, thereby ensuring the homeowner gets “the signal before we get the claim.”

What is happening with cars will happen with homes, Tisdale suggested. “The amount of sensors and different technologies we put into the cars for crash avoidance, lane changes, blind spots and all that kind of stuff, it’s not a stretch to think that’s coming to our houses,” he noted.

Knowing what is about to happen with water heaters, heating systems and pipes is obviously beneficial, Somerville said. “Clearly, those kinds of solutions are going to reduce exposures and should have an impact on pricing, no different than some of the things that exist today,” he said.

Blais agreed there are plenty of ways to improve and reduce losses in the home with better technology. “Those who will install or adapt will get a benefit,” he said.

“Those homeowners who actually do something with that information (from sensors and alerts) or have their systems set up appropriately to respond will ultimately drive their cost of insurance down,” noted Karen Gavan, president and chief executive officer of Economical Insurance.

Gavan emphasized, though, that there is a behavioural element that must be considered. “Just because the technology’s in the house doesn’t necessarily mean it’s going to be used effectively. So, technology only goes so far because it’s still human behaviour that impacts into the process,” she said.