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Microsoft, insurer, may make home automation inexpensive -- even free

Patrick Thibodeau | June 23, 2014
An economic model for Internet of Things deployments that ties technology to insurance claim reductions

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.

 

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