Do credit-based insurance scores annoy you? Do they make you feel trapped by your past? Maybe you realize that medical debt or other situations can tank someone’s credit without affecting what kind of risk someone is.
Maybe you just think that your credit is no one else’s business. Whatever your feelings on the matter, you’ll find that (outside of a very few states) your credit is an incredibly important factor when you go to buy Renters Insurance. You’ll also find that it’s going to get much worse before it gets better. Welcome to the future, where your fridge spies on you!
The Next Worst Thing
Credit-based insurance scores have been around for a while, and have been concerning people since day one. They’re an industry standard, but one can argue their utility, or lack thereof. We saw an interesting piece today on Personal Insurance And The IoT that piqued our interest. The concepts posited in the linked article are entirely within the realm of possibility. Is that a good thing or not? You decide!
The IoT, or Internet of Things, is the overall group of connected devices that
precede your robotic overlords are helping you to live an easier life. These devices are networked, and phone home with data as well as using that data to help you. If you’ve bought a new fridge recently, it may be connected to the internet. So how in the world is this relevant to the next step beyond credit-based insurance scores?
Let’s say your new fridge is phoning home with data. The manufacturer aggregates this data and determines that the 25-34 crowd gets a beer out of the fridge approximately every two hours when they’re home on a Friday night. That’s assuming they drink, of course, but that’s a given because your fridge will know what’s in it. So let’s assume that you have beer in your fridge and you fall into that demographic. It’s now midnight on Friday and you haven’t taken a single beer out of the fridge – or anything else. That means you’re not home. People who aren’t home are at higher risk for theft, certain types of fires, and a host of other bad things. Higher risk? Higher premium!
This is a developing area, of course, but it raises many interesting questions. Let’s assume that insurance companies want to use this data – be it from your fridge, your wi-fi thermostat, or even your smart TV (you do realize it’s sending data back to the manufacturer, right?) What about consent?
What About Consent, Indeed?
When you call Effective Coverage for a new renters insurance policy, you’ll hear a disclosure about credit-based insurance scores, along with a statement that by continuing, consumer reports may be obtained. Once in a while, someone thinks we’re talking about a magazine, but in general people understand that to mean credit reports. So you’ve consented to a credit report and you get a quote…
Actually, in reality, “consumer reports” can refer to a wide variety of information about a consumer, their characteristics and habits, and other risk factors. Today, all you’re consenting to is a credit report and maybe a report on previous claims. Tomorrow, though, once this data is properly aggregated by manufacturers and consumer reporting agencies, you’ll find that it means much more.
But How Will They Use This Data?
There are two ways that this data could be used in addition to or in lieu of a credit-based insurance score to price renters insurance. The smaller risk is that, as the data set grows, it can be used in a community rating fashion, not unlike the way health insurance is rated. This may not be a terrible thing, because if sixty percent of your neighbors are gone every Friday and Saturday night, it’s not just the insurance company that knows it.
The thieves a few blocks over may not have access to the aggregate data from your connected appliances, but they do have eyes and ears. They’ll know that no one is home at your house, or on either side of your house, and they’ll take advantage of it. This may even be a reasonable use of such data on the part of the insurance company. They can’t rate you properly if they don’t know what the thieves know. Aggregate data concerns very few people, to be honest.
What concerns people is individual data. IoT data today is not a concern, because you’ll find that the companies need to get a ton of data, and then the actuaries need to manipulate it which takes time, and then rate filings need to be approved, consumer privacy statutes need to be complied with, and on and on. But one day, this data will be used on an individual basis.
Based on the current version of the FCRA, we don’t think it’s too far-fetched to think that the same disclosure which enables “consumer reports” like credit-based insurance scores will be used to enable a report on what time you used your appliances, or even whether you answered your phone while the stove was turned on. Since distractions while cooking are a common cause of apartment fires, there may be an interesting correlation there.
What’s The Solution?
The inherent problem with IoT rating of renters insurance is that we don’t yet have the data. While this is an evolving area that the industry as a whole hasn’t really spoken much about, we at Effective Coverage believe that it’s important to decide how data like this can and may be used in rating and underwriting renters insurance policies before the data is available.
Sure, those rules will have to evolve and change over time as the data set grows. But some ground rules need to be set before the data is available. Insurance companies will use any and all predictive data they can get – that’s a given, and it’s how they’re able to stay in business. That’s their prerogative. What we’re more concerned about is the people who will collect the data. There’s more than the Big Three CRAs out there collecting data currently, and most people don’t know that they have a shopper profile at a company they’ve never heard of, for example. Most people have no idea that Target can figure out a teen girl is pregnant before her parents can.
What will insurance companies do with IoT data? Will your smart TV make you uninsurable? We doubt it. But it’s important to have this conversation at both the industry level and the consumer level before the data is available with no rules and no options to get data corrected as necessary.
Where Is My List Of Ten Things I’ll Hate?
For those who are looking for a list of ten things you’ll hate more than credit-based insurance scores… Look around your home. Do you have more than ten appliances and/or devices? Those are the ten things you’ll hate, because they’ll be feeding data back to the manufacturer, your insurer, and probably even your landlord. Maybe even your mother-in-law will check up on you from time to time with that data.
Now do you see why a conversation about rules for using this data needs to be had before it’s available?
To find out more about the factors that go into rating your policy today, and to learn what insurance companies know about you and how they might use it, just call (800)892-4308 or click to get covered - whether you need renters insurance quotes online or coverage anywhere else!
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