Is telematics the next big thing in home insurance?

Notion is a company that makes sensors. The sensors are round, sleek, and unobtrusively sized, fitting easily in the palm of the hand. They’re what Ryan Margoles, co-founder of the Denver-based firm, calls “multi-capable” — built to do several tasks at once, like measure the temperature, or detect water leaks. They pick up movement through doorways, when a window is open or during the presence of smoke.

The sensors are also what’s known as “telematics” devices, and a handful of companies are using them in an effort to make home insurance cheaper.

In June, Notion announced it would be partnering with American Modern Insurance Group to give the insurance company’s Alabama, Colorado, and Ohio customers discounts for Notion sensors. A few months later, in August, Notion announced a second partnership, this time with Travelers Insurance: select Travelers customers in California would also be getting discounts for Notion sensors. The reason for both partnerships was the same: to encourage homeowners to install Notion sensors in their homes and use them to monitor, discover, and thus prevent a handful of common “perils” from happening: fire, theft and water leaks.

Notion told LowestRates.ca that the company doesn't have any plans to expand in Canada just yet, but these collaborations between Notion and two veteran U.S. insurers signal a shift in the home insurance industry at large. While auto insurance companies — especially American ones — have long embraced telematics to monitor how their customers drive, using the resulting data to adjust the way they determine those customers’ level of “risk,” home insurers still assess risk the old-fashioned way: by looking at a home and estimating how well it would hold up in the case of a bad situation.

Technologies like Notion’s, which collect data on how homeowners respond to emergencies, offer home insurers a chance to update how they assess risk in a way that reflects the responsibility of homeowners. As with auto insurance, such a move could help make premiums cheaper. But, it could also impact the way people live in and interact with their homes.

A look at the technology

Here’s how it works: when American Modern and Travelers customers order Notion sensors, the company ships them in packs of three or five. The sensors have an adhesive backing, which makes it easy to stick them onto different parts of your home, and the company’s app will give guidance on where to best install them. “We say that our average install time is less than 15 minutes for the entire house,” Margoles tells me. “Which is pretty cool.”

From that point forward, it’s a matter of paying attention to your sensors. As noted, the sensors are geared towards alerting customers about water leaks, potential break-ins and smoke and temperature changes. When alerts do go off, it’s up to the customer to react. And it is those reactions, as well as the factors that made an emergency happen in the first place, that get catalogued by Notion — data that Margoles says will help insurers be more fair with how they assess risk.

“Say we have 50,000 homes’ worth of data, and we can look at certain trends around geographics,” he says. “Are there higher risks in certain areas that have this type of weather? Are there certain risks for people who leave at certain times of day, and who are not home at certain times of day? Are there different things we can do to assess risk differently there?”

For now, neither American Modern nor Travelers will use this data to determine how much they’ll charge their customers. In September, another insurance company, Hippo Insurance Services, announced that they would give customers discounts for Notion sensors and cheaper premiums to any customer who actually installs the sensors in their homes. But for the time being, the insurance discounts are fixed rather than determined by how effectively customers respond to the sensors’ alerts.

Margoles thinks that individualized discounts — much like the ones offered by auto insurers via pay-as-you-go programs — are on the horizon, though. “On an individual level, there are certainly opportunities to score risk,” he says. “I’ve mentioned that a couple of times, and I really harken back to the car sensor, where if you’re a safe driver, you can get a discount on your car insurance.

“There’s certainly similar applications on the homeowner, renters side.”

The precise details of how such a system would work haven’t been figured out yet. But Margoles has some ideas about what factors insurers might take into account.

“Are people leaving their garage doors open when they go to work? If there is a water leak, are they coming and fixing it quickly? Do they come home, open the front door, and turn the lights on? Do they resolve the issue? How do they kind of respond to certain things?”

Such “behavioural” trends might actually be more relevant to how risky it is to insure a home than the structure of the home itself, Margoles says. Replacement value of the structure of a current home is one of the main ways insurers price premiums for existing home insurance.

Telematics comes with privacy concerns

But agreeing to have telematics in your home also means agreeing to giving up some of your privacy. For years, critics of car telematic technologies have grappled with the question of whether cheaper rates are worth it.

Those concerns are the technology’s major hurdle. For instance, 75% of Canadians told the Office of the Privacy Commissioner of Canada in a 2014 survey that they had concerns about the use of telematics.

The prevailing narrative for supporters of telematics is one of “taking control” — monitoring technologies will give customers the chance to be rewarded for “good” behaviour. It can feel ironic, though, that technology that makes you feel obligated to meet certain criteria for navigating your home — keeping your doors closed and your lights off; fixing problems right away, even if it’s not necessarily convenient — is described as taking more control of your circumstances. How “in control” would you feel if you had to make sure that your behaviour consistently fell in line in order for you to qualify for cheaper insurance?

Of course, the answer largely comes down to the criteria telematics demands of customers . Are they difficult or simple to meet? Would there be a blanket set of rules for all homes, or would there be different rules for different types of homes, and different types of circumstances? And finally, is meeting all the criteria — whatever they turn out to be — in fact worth having access to cheaper premiums? Until home insurers take the next step and actually let their customers’ behaviour affect rates, it’s hard to say — and even then, any answer will be highly subjective.

With home insurance rates getting higher — and for many, less affordable — each year, telematics at least offers the chance to lower your rates. “Insurance itself hasn’t really had much disruption or much change in many many years,” says Margoles.

“But I think Notion has that potential because there’s a different way to look at risk. And there’s a different way to make customers happy and excited and educate them.”