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Every day, it seems like a new household item joins the "internet of things." Refrigerators can now write grocery lists and send them to your phone. Fish tanks can sync with Wi-Fi to mimic the sun cycle of Indonesia.
You may question the necessity of some smart devices or how companies use them to capture your personal information. These concerns are part of an ongoing debate about technology and data privacy with no end in sight. However, there is at least one area where consumers and companies may find smart devices mutually beneficial: the insurance industry.
Insurance is all about quantifying and managing risk. People generate massive pools of data, which insurers use to measure their risk, calculate appropriate rates and predict investment gains. In exchange for their data and policy premiums, policyholders receive financial protection against perils they couldn't independently afford.
Telematic devices can improve this exchange of information and insurance for both parties involved. By installing telematics in your home, you can get an update to your phone if you leave your garage door open. Smart thermometers can monitor temperatures in your house to prevent your pipes from bursting while you're on vacation, and a telematic smoke alarm can alert your local fire department within seconds of detecting a fire.
"One of the easiest metrics to use to understand (the value of telematics) is how these devices enable a faster response to incidents," said Domingos Bruges, CEO of Muzzley, an app that integrates smart devices and facilitates the exchange of information between insurance companies and individuals. "Reacting to a fire in the first 50 seconds is totally different from reacting in five or 15 minutes."
But smart devices don't just enable you to respond to incidents more quickly. They also provide richer data for insurance companies to use when evaluating their risks. If your insurer can access certain information, such as the temperature of a house or how consistently the doors are locked, and aggregate that information across thousands of homes, they'll be able to better determine their risks and policy rates.
Should I be concerned about my privacy?
Understandably, many people don't like the idea of their insurance companies knowing such detailed information about their personal habits. That's why some companies, such as Muzzley, process consumers' raw data into scores or profiles before passing it on to insurers. That way, insurers receive categorical information about people, not personal data about individuals themselves.
But even when detailed personal information is shared—which isn't uncommon in our digital age—homeowners shouldn't view it as an invasion of privacy. According to Sasha DeWitt, Muzzley's cofounder and COO, you should view some personal information as a tradable commodity. "You're using your data as an asset and receiving services in return." Instead of blindly sharing your information, Muzzley identifies the specific data points insurers need, which individuals may share in exchange for a policy discount.
That being said, individuals will need to decide for themselves what information they're comfortable giving up. As smart devices become more common and the insurance industry further incorporates telematics into their insurance packages, consumers will need to opt into sharing personal information for enhanced protection and insurance discounts.
Are telematics worth the price?
As a type of emerging technology, smart devices tend to be significantly more expensive than their "dumb" counterparts. However, if your insurer offers policy discounts for installing telematics, the devices could pay for themselves in reduced premiums.
For example, Google-owned company Nest claims that homeowners who install the Nest Protect—a Wi-Fi-enabled smart smoke alarm—may receive discounts of about 5% off their insurance premiums. If your policy costs $1,000 annually, your Nest Protect would pay for itself in 2 ½ years.
While that return on investment may win over some buyers, it's worth pointing out that the real benefit of smart devices is the protection they provide. Not only could a more prompt response to a fire or leak save you thousands of dollars in additional damage, but they could also protect the health of your loved ones.
Which insurance companies offer telematics discounts?
The integration between homeowners insurance companies and telematics is fairly new, and there's a lot of room for further development. However, insurers are aware of the benefits telematics bring to the home, and many are prepared to offer policy discounts if you install such devices.
Eligible products and discounts will vary by insurer and state. For example, Liberty Mutual policyholders in many states, including New York, California and Texas, can earn a discount on their policies by installing Nest smart home devices.
Homeowners in Florida might not qualify for this specific partnership, but they could receive a discount on a State Farm policy if they install a Canary smart home security system.
Similarly, Erie Insurance has partnered with telematics manufacturer Roost, so policyholders who install Roost's Smart Water Leak and Freeze Detector may receive a discount.
Contact your insurer and ask if it offers any telematics discounts, or shop around to see which incentives are offered by other insurance companies in your area. But even if you don't qualify for a discount, you might still find the added protection smart devices provide are worth the investment.
The article, Telematics: Should Homeowners Share Data for Lower Insurance Rates?, originally appeared on ValuePenguin.