If home automation can reduce insurance claims due to fire, water damage and theft, insurers may become advocates for Internet of Things technologies.
That could change the business model for the Internet of Things as it applies to home automation. Insurance companies may one day subsidize the cost of installing the technologies, or possibly cover the entire bill.
That's why this week's announcement by American Family Insurance and Microsoft to work together on home automation technologies may be important.
The companies announced the creation of a Microsoft Ventures Accelerator that's focused on home automation. American Family Insurance, the eighth largest homeowners' insurer in the U.S., will be offering equity investments to startups accepted into the program.
American Family's interest in funding technology development grows out of its experience from an earlier technology venture, the Teen Safe Driver Program. Launched a few years ago, the program includes installation of an accelerometer and event recorder near a vehicle's rearview mirror.
The recorder is always on and records the interior of the vehicle and what's outside. When there is an erratic movement, such as a hard brake or rapid acceleration, the recorder saves the previous 10 seconds and the next 10 seconds of the video clip. The clip is transmitted to Teen Safe program professionals, who evaluate it and make it available to parents via a Website.
The accident risk of 16- and 17-year-olds is about nine times that of parents, said Dan Reed, managing director at American Family Ventures. The information from the video is used by parents to help coach their teen driver.
The economics of the program were compelling, said Reed. It cost the insurance company several hundred dollars to outfit a vehicle with an event recorder, and it paid the cost of doing so. But for teens in the program, it has reduced the risk of a crash by 70%.
"That opened our eyes to proactive protection," said Reed.
As a result of their experience with Teen Safe, American Family began searching for other opportunities to use technology to reduce risk. The search has led to home automation, said Reed.
The major cause of insurance claims by homeowners is weather, and Reed says little can be done about that. The next big problem is fire, and advance sensors could draw correlations with electrical usage in a way that may predict an appliance fire, or even provide an alert of a burner left on.
The next big area for insurance losses is water damage, Reed said. In this case, American family is investigating a technology that can communicate wirelessly with a home's electrical or powerline systems. The tech could greatly extend the life of moisture sensors used to detect water leaks.
Another area of interest is home security, which today often involves monthly contracts. Reed said the company now believes it's possible to lower to cost of security systems with automated alert systems.
Connecting various systems in a house creates opportunities for new ideas.
For instance, if a smoke detector goes off, an application can be designed to alert the fire department as well as make front porch lights flash. All of this requires an ability to bridge different communications protocols and wireless technologies.
One potential technology approach is offered by Revolv's hub, said Reed.
Revolv makes a hub with seven wireless radios that support 10 or more wireless protocols. The supported protocols include Z-Wave, Insteon, WiFi, ZigBee, two 915 MHz radios that work with proprietary systems, and 433 MHz, which is used by a lot of security systems, said Revolv CEO Tim Enwall.
"We are in business to bring smart homes to any homeowner that wants them," said Enwall. Revolv's system will allow vendors to develop applications that can work with other devices that communicate through its hub.
Reed believes American Family's involvement may help accelerate home automation adoption. It expects to encourage adoption by covering at least some of the cost and hopes to work with some startups and policy holders who opt-in as early adopters.
"That's the economic angle that we hope to bring to this space," said Reed. If insurer can offset claims expenses by subsidizing some of the deployments of new Internet of Things technologies, "then everyone wins," he said.
Patrick Thibodeau covers cloud computing and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld. Follow Patrick on Twitter at @DCgov or subscribe to Patrick's RSS feed. His e-mail address is email@example.com.
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