Real estate and property management are about the most tangible of assets. Perhaps because of this, they have experienced relatively minimal technological disruption. This may be changing, as a number of property technology (PropTech) startups hit the scene, ready to shake up real estate and property management. Some of these innovations will likely affect insurers and insurer CIOs—especially in their demand for greater flexibility and capacity to ingest and analyze larger volumes of data to offer competitive policies and start the customer journey earlier.
PropTech exists for both residential and commercial property. It can be divided into either solutions that disrupt the market itself by changing how property is bought, sold, and leased or into solutions that impact how property is managed. PropTech more broadly can also include construction startups (ConTech) and real estate FinTech.
PropTech for buying, selling, and renting property
Technology is affecting how property is bought, rented, and sold, which, over time, may impact the types of property products insurers offer as well as how such products are marketed and sold. One example of property market disruption is the advent of iBuyers: companies that quickly assess the value of a home and make a seller an offer, deducting a fee of around 6-7% of the expected value. The cost to the seller is only slightly higher than what they would expect to pay a real estate agent, and they benefit from a much faster sale—measured in days rather than weeks or months.
SoftBank’s Vision Fund has backed a number of PropTech startups, including a prominent iBuyer called Opendoor, WeWork, a property brokerage called Compass, and a construction startup called Katerra. Offerpad and Knock are two other iBuyers that work on a principle similar to Opendoor’s. More traditional home listing sites have not been idle, either: Redfin and Zillow now offer iBuyer services along with their standard home listings. iBuyers currently offer their services only in large cities with lots of easy-to-appraise, post-1960s housing. One such city is Phoenix, AZ, where iBuyers already make up 7% of home sales. As they gain experience, iBuyers will likely branch out to other forms of housing in less dense areas.
In the medium to long term, iBuyers could present opportunities for new types of commercial specialty insurance, similar to builders risk. Given the large number of properties and their rapid turnover, an iBuyer policy would need to be sold as a master policy, with properties easily endorsed on and off as they are bought and sold. Most policy administration systems do not enable such easy endorsements, so some investment in core systems and a self-service digital front end for policyholders would be necessary for most insurers to offer competitive policies. Insurers offering such policies would also need to pay close attention to risk densities, as iBuyers are currently operating in a relatively small number of densely populated localities.
PropTech for managing property
In the shorter term, PropTech’s growth within property management is already affecting claims and underwriting. Smart sensors, like those offered by Roost, Google Nest, and SimpliSafe, can notify homeowners of fires, flooding, or theft, shortening response times and potentially reducing claim severity. Some insurers have begun offering discounts for smart home sensors or for companies that engage them for risk mitigation services. USAA, Liberty Mutual, and Erie Insurance, for example, all offer discounted homeowners insurance for policyholders who install Roost leak or fire sensors in their homes.
On the commercial property management side, Rudin, a property management company, has developed Nantum via its subsidiary Prescriptive Data and invested in another startup, Enertiv. Nantum captures real-time data on metrics like building occupancy, water usage, and office temperatures. This has helped Rudin reduce electricity and steam consumption considerably. It now markets Nantum to other property owners. Such data could also be used for underwriting and claims. HSB has branched out into risk mitigation services through machine monitoring sensors. In residential and office settings, sensors indicating a building is unoccupied could trigger insurers to offer a different policy to the customer. Signs that a building was above occupancy could trigger policy exception clauses when a claim is made or a warning from the insurer before a claim to reduce risks. An insurer could also reach out to a customer whose building is improperly heated to help avoid water damage claims.
PropTech and insurers
Regardless of the sector or use, all these technologies will require access to, and the ability to gain insights from, large amounts of data—and not just from sensors. Through the right partnerships, insurers could discover who recently bought smart sensors and target them for homeowners or renters insurance. In addition to data and analytics capabilities, insurers will need a robust digital front end to provide seamless self-service to a group of clients technology-savvy enough to have outfitted their homes with smart sensors. Supporting these data and digital capabilities may require investments in nimble core systems as well.
PropTech is already beginning to change the real estate and property management industries. Insurers have begun to provide products tailored to users of smart home devices and companies monitoring industrial equipment, but there are opportunities to sell more by initiating the customer journey when the customer buys a sensor rather than when the customer decides to head to a specific insurer’s website. In the longer term, new types of insurance, enabled by more agile core systems, may provide better coverage for rapidly growing iBuyers, flippers, or owners of commercial space.
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