Are Smart Device Home Insurance Discounts Worth It?

Because an increasing number of insurance companies are partnering with smart device manufacturers, purchasing a smart device is a convenient way to save money on insurance. However, the savings are ultimately negligible and should not influence a homeowner's choice of insurance company.

Smart home devices are becoming an increasingly important part of the lives of homeowners. In fact, Amazon announced the day after Christmas that its Echo, Echo Dot, and Alexa Voice Remote devices were the best-selling items during the holiday season. However, smart devices are more than just a way to turn off lights and create playlists. They can also save homeowners money while increasing home security when used in conjunction with a home insurance policy.

Homeowners should always be on the lookout for ways to save money on their insurance policy through safety discounts with their preferred insurer, especially if a partnership with a smart device company yields particularly large savings. However, we discovered that smart device discounts are often minimal as a percentage of total home insurance premiums in many cases. When applied to the national average annual premium of $1,083, our sample calculations for the Amazon and Travelers deal resulted in home insurance premium discounts of approximately 3%, saving shoppers slightly more than $30 per year.

Perhaps more importantly, discounts for centrally monitored safety devices are almost always larger, implying that homeowners looking to save money are better off installing traditional centralized alarm systems rather than purchasing smart devices. If homeowners are already planning to buy qualifying smart devices, they should take advantage of the discount, but these offers should not be used to choose one insurance policy over another.

Travelers and Amazon: The Latest Home Insurance and Smart Device Partnership

Travelers is the most recent insurer to announce a partnership between home insurance and smart devices. The carrier announced a partnership with Amazon in the fourth quarter of 2018 to provide policyholders with a free Amazon Echo Dot and the opportunity to purchase smart home kits at discounted prices, all while saving money on your home insurance premium. If homeowners are already planning to purchase a Travelers policy and want to improve home security with smart devices, this deal is well worth taking advantage of. However, we believe that the savings in this deal are not worth going out of their way for. In relation to this deal, there are four key takeaways for homeowners. With the exception of specific companies and partnerships, these points apply to the majority of the insurance and smart device deals we investigated.

Amazon and Travelers Smart Kit deal takeaways...

• Smart device discounts on home insurance rates are highly variable, but small. We discovered that Travelers' smart device deal was approximately 3% of annual premiums on average. The amount saved will be determined by the homeowner's overall cost of home insurance.
• The discount to total premiums is heavily influenced by the types of risks to which a home is exposed. If an insurer prioritizes the risk of water damage over the risk of theft, as is common in some regions, smart devices that mitigate water risks will save more money than security cameras.
• Devices that are centrally monitored get better deals. Premium discounts from smart devices are frequently lower than discounts from traditional monitored alarm device equivalents, such as central burglar alarms.
• Discounts for the same risk are rarely combined. There is little financial benefit to purchasing a smart fire alarm or temperature-monitoring device if you already have a central fire alarm.

There are two deals involving Travelers Insurance and Amazon for Smart Devices. One is a complimentary Amazon Echo Dot for both new and existing customers. The other is a discount on Amazon-purchased smart home kits, as well as the associated savings on home insurance for policyholders. These offers, as well as how they affect home insurance quotes, are discussed further below.

Free Amazon Echo Dot for Travelers Home Insurance Customers

Existing Travelers home insurance policyholders and shoppers who purchase a new Travelers home insurance policy are eligible for a free Amazon Echo Dot (a $30 retail value) with their policy. This offer is currently available on qualifying homeowners policies in 25 states and is set to expire at the end of 2019, though it has previously been extended. If homeowners are in the market for a new home insurance policy and are considering Travelers, they should take advantage of this offer.

Qualifying states for Amazon deals

• Alabama
• Arizona
• California (limited to first 15,000 customers)
• Colorado
• Connecticut
• Idaho
• Illinois
• Iowa
• Kansas

• Kentucky
• Maine
• Minnesota
• Mississippi
• Missouri
• Nebraska
• New Jersey
• New Mexico

• Ohio
• Oregon
• Pennsylvania
• Tennessee
• Texas
• Utah
• Virginia
• Wisconsin

Smart Device Package and Homeowners Insurance Discounts

When purchasing one of three Smart Kit packages on Amazon, new and existing Travelers policyholders may be eligible for a discount on the purchase of smart home devices. These discounts, which range from $30 to $40 off smart devices, are currently available in the same 25 states as the Echo Dot deal, but unlike that deal, there is no limit for customers in California.

Since the program's inception, Amazon and Travelers have steadily increased the number of qualifying states, and this trend is likely to continue. The offer was supposed to expire at the end of March this year, but that deadline has also been extended. Purchasing a kit can also result in a discount on a policyholder's homeowners insurance premium, though these savings vary depending on the customer.

Amazon smart kit packages…

The kits assist homeowners in dealing with three common home perils: theft (via cameras and motion sensors), fires (via temperature monitoring), and water and flood damage (through the water leak sensor). Customers who purchase these items through Amazon save approximately $31, $39, and $42 versus retail prices on the Smart Kit, Kit Plus, and Kit Premier, respectively.

The reduction in homeowners insurance premiums is less certain. Travelers recommends that customers call its customer service line after installing the Smart Kit to obtain a home insurance discount. However, there is no set rate for these discounts, which can vary greatly by state and residence.

We looked at a rate filing for a Travelers home insurance policy in Utah to get some more concrete numbers. Using this data, we discovered that the devices that protect against water damage, such as the SmartThings Water Sensor with automatic water shutoff functionality, contribute the most to savings on a sample home insurance premium. Other Smart Kit devices, such as cameras and motion sensors, will not provide a greater discount than you would receive with a standard burglar alarm.

In either case, the savings from an Amazon Smart Kit on a homeowners insurance premium will most likely be minimal. We discovered that discounts to base rates from Smart Kit devices would amount to just over 3% of a sample homeowner's annual premium. Traditional monitored alarm devices, such as central theft, fire, and water sensors, result in slightly higher savings, around 4%.

Base rates and premiums are examples from a home insurance filing with Travelers in Utah, but actual rates will vary based on a variety of other factors, such as location, construction type and age of home.

A central burglar alarm, for example, reduces your theft premium at five times the rate of a smart burglar alarm (motion sensors and security cameras). The table below explains how these discounts work in more detail.

How perils contribute to a sample home insurance premium…

The table shows how individual peril base rates add up to a total home insurance premium. These rates are subject to a variety of adjustments, but the example rates show how discounts can affect the total cost of a policy. A smart burglar alarm reduces your theft risk by 1% with Travelers. With these base rates, theft accounts for only $48 of your total premium, so a 1% discount saves you about 50 cents. A central burglar alarm discounts the same peril at five times the rate (5%), saving you approximately $2.50 on your home insurance premium.

The effects are more pronounced for water sensors with Travelers Utah base rates, as non-weather water damage accounts for a larger portion of the total premium. For example, having a central water sensor with a smart water shutoff reduces your non-weather water damage rate by 15%. In this case, you save $42 on your total premium. However, different types of houses in different areas will have different base rates for each peril, and the total value of your discounts will be determined by the rates assigned to a home. As a result, homeowners should always get a sample quote from insurers, as discounts can vary greatly.

Customers should be aware that discounts frequently do not combine due to overlapping functionality. For example, if a home has a centralized fire alarm, it will not be eligible for a larger discount if it also has a smart smoke detector. However, there are some exceptions: Discounts for having both a central water sensor and a smart automatic water shutoff device can be combined with Travelers. When speaking with an agent, homeowners should make certain that they take advantage of all discounts provided by their devices.

Other Insurance Company Discounts for Smart Devices

In the world of insurance, the Travelers deal is not unique. A number of home insurance companies have begun to collaborate with, or even invest in, smart device companies in recent years. These insurers are offering discounts and deals on devices that help maintain a safer home in the hopes of increasing customer safety and lowering the risk that policyholders will file claims. Our conclusions are similar to those of the Travelers and Amazon deals, though in the case of Liberty Mutual, we were able to find evidence of increased discounts for sponsored partnerships.

General smart device and home insurance takeaways...

• The amount of a discount will be determined by how risks are weighted for individual homes. If you live in Florida and non-hurricane risks account for a small portion of your overall premium, your smart device discounts will be proportionately small.
• In some cases, branded alarm device partnerships may provide significantly greater savings on home insurance premiums than generic smart device discounts, as demonstrated by Liberty Mutual's partnership with Vivint.

First Community Insurance and Roost

For example, First Community Insurance Company, a subsidiary of Bankers Insurance Group, is one of many insurers that has partnered with Roost, a smart home device company, to provide policyholders with a Smart Water Leak and Freeze Detector. Homeowners, unlike Travelers, do not purchase the device but rather borrow it for the duration of their policy. Discounts on your home insurance policy, like those offered by Travelers, are variable and unlikely to be as large as advertised. We examined insurance filings for First Community in the state of Florida and discovered that, on average, discounts for a sensor-based water leak detection system are limited.

We've based our calculations on the state's average hurricane and non-hurricane base rates, which add up to your total premium. The water leak device discount is 5%, but it is applied to the non-hurricane base premium ($572), saving approximately $29. As a result, it's always worthwhile to inquire about available discounts, as your location or the characteristics of each home will have a unique base premium, and discounts will vary higher or lower depending on those factors. Homeowners in Florida, for example, who have a higher non-hurricane base rate will receive a much larger discount.

Liberty Mutual and Smart Home Devices

Liberty Mutual, which offers customers deals from a variety of smart device companies, has been one of the most active major insurers in this space. Liberty, like Travelers, offers discounts on cameras and motion sensors, but Liberty also offers discounts on smart locks and smart smoke detectors. The available options are listed below, but shoppers should keep in mind that discounts may overlap. For example, both Vivint and Canary focus on home security camera devices that aid in the prevention of theft, and a homeowner would not receive multiple home insurance discounts if they used both deals.

Liberty Mutual smart device deals…

After speaking with a Liberty Mutual representative, we discovered that its discounts vary greatly depending on the homeowner, and offers are not generally available in all states. However, after conducting our own research into security discounts, we discovered some unusually large discounts for Liberty Mutual's partnership with Vivint. A home insurance policy in Massachusetts, for example, was reduced from $164 per month to $144 per month ($20 per month or $240 annually) when we added centrally monitored theft, fire, and water-protection Vivint devices to the quote, resulting in a 12 percent premium savings. When equivalent, non-branded monitoring devices were used, the savings were only $10 per month, or 6%. It is important to note, however, that these are smart devices that are centrally monitored. As a result, part of the reason for the steep discounts is not that these are smart devices that alert the homeowner to danger, but that they alert professionals—the police or fire department—in the same way that standard central alarms do.

Discounts are highly specific to a homeowner's situation, according to insurer rate filings. However, unlike Travelers, Liberty Mutual's online quote tool allows customers to instantly check and compare these discounts.

Should Homeowners Seek Out Insurers with Smart Device Discounts?

Given that many of these smart device packages cost several hundred dollars, they are rarely a worthwhile investment in terms of premium savings. The biggest discount we found, thanks to a partnership between Vivint and Liberty Mutual, necessitates purchasing a variety of home security devices from a single brand, and this discount was the exception rather than the rule. Premium savings from smart devices, while variable, are typically minimal, and traditional monitoring devices such as central fire, smoke, and water sensors provide larger discounts.

When looking for the best homeowners insurance policy for themselves, homeowners should consider a number of factors, including coverage features, overall price, customer service, and financial stability. Discounts on smart devices are only a small part of the equation. However, if homeowners decide to purchase these smart devices anyway, they should consult with their insurer and take advantage of any available discounts.

Should Homeowners With Smart Devices be Worried About Data Privacy?

The proliferation of smart devices in the home has raised concerns about data privacy and the extent to which the devices may be recording private information about homeowners, both known and unknown to them. Consumers with smart devices in their homes may be at risk of having their data compromised, both directly from their devices and through insurance companies that collect and store their data.

For example, a Florida insurance filing for First Community Insurance states that if its customers receive a discount for home telematics advice, they "...consent to the release of all data and/or information produced, monitored, obtained, and/or captured by such device(s) to the Insurance Company by the devices' third party provider." Unknowingly, homeowners looking for a discount may be disclosing sensitive information to their insurer.

Are smart device users compromising their data security? According to Asaf Ashkenazi, Chief Strategy Officer at Inside Secure, a technology security solutions firm.

"The security of most of these consumer devices ranges from no security to basic security," Ashkenazi explained. Because the devices lack security, they are "easy targets for hackers who can obtain live video streams and other private data."

Of course, hackers are not required to target specific consumers. Insurance companies that store consumer data are vulnerable to data breaches if they do not take steps to tighten information security protocols. "It is almost certain that the databases of such insurance companies are a target for hackers," warns Ashkenazi. "In many cases, companies in charge of handling this data fail to protect it adequately, resulting in massive leaks."