Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government
Issue link: https://fhpublishing.uberflip.com/i/606960
28 | 27TH NOVEMBER - 3RD DECEMBER 2015 | UTILITY WEEK Operations & Assets Analysis C onsumer-facing Internet of Things applications are extending beyond the obvious consumer benefit of remote control of thermostats or video cameras and are starting to play a role in the reinven- tion of other industries. The resulting scope creep of these industries will take them head to head with utilities in the energy market. This could be either a threat or a partnership opportunity. To illustrate this, let's look first at the insurance of cars, homes and pets, which all benefit from being reinvented for an Internet of Things world. According to Berg Insights, the indus- try has already signed up 4.5 million Euro- pean customers of pay-as-you-drive policies through monitoring driver behaviour in con- nected cars. Lowering insurance risk allows insurers to reduce price, which stimulates market growth. Next, the industry has its sights set on reinventing home insurance and pet policies. The biggest sources of home policy claims are escaped water, fire and the. Sensors, controls and data analytics can reduce the claims. The prize for doing so is high. According to Insurance Europe, in 2013 EU property premiums totalled €89 billion, of which €55 billion (62 per cent) was paid in claims. If you know the house is approach- ing zero degrees temperature you can over- ride the thermostat to protect pipes from bursting. If you have an electronic smoke detector you can call the fire brigade and turn on sprinklers. One European insurance company recently announced plans for a connected home security service on a two- year contract with "free insurance". The biggest driver of pet claims is obesity. A European insurance company recently launched a wellbeing service for dogs. For a monthly fee of £50, the owner gets monthly delivery of healthy dog food and treats, treat- ments and a sensor-based activity tracker as well as "free pet insurance". What insurance companies appear to be experimenting with in these new services is: • reducing the number of claims through connectivity solutions; • improving insurance retention (by coupling the insurance to a connectivity solution that has a two-year contract); • leading a new category (wellbeing) from which they can make additional margin (on security monitoring, pet food, flea treatments and the dog activity sensor). There are three reasons the connected insurance trend leads to scope creep that threatens utilities. First, if an insurance company installs any connected home devices for security, pet monitoring, water or fire protection, they will provide a sticky digital touchpoint through which they can engage with the customer. The customer will not have the appetite for ten different connected home interfaces, so the supplier who is first to market into a home has a first mover advantage in provid- ing many more devices. Second, innovative insurance companies are no longer just offering discounts to peo- ple with home security services, but starting to enter the home or pet "wellbeing" market themselves. That insurance company may not just offer discounts to customers whose smart thermostat has burst pipe protection, but may actually offer the thermostat itself to the customer. The thermostat would also be useful in the insurance companies' desire to increase market share of, and to automate, home emergency cover of boilers. This pits insurance companies against utilities for the thermostat and boiler cover market. Third, once offering a thermostat, the insurance company could easily make the small brand jump to adding energy monitor- ing and efficiency advice. If retailing energy is a step too far it could then offer wellbeing switching services, making £20-£40 com- mission per switch, which would go straight to the bottom line. Regulatory policy would facilitate this because Ofgem want to see one- or two-day supplier switching by 2019. A European smart home start-up is already doing this, so why shouldn't an insurance company add it into its mix? In the telecoms industry, some compa- nies have already scope crept into the energy industry. US security and telco/cable opera- tors have been the main drivers of connected homes, with a reinvention of the security category called "peace of mind" that allows broad use cases including pet monitoring, child wellbeing, nanny monitoring, burglary protection, automatic remote control of door locks, smart plugs and much more – includ- ing smart thermostats. Cable operator Com- cast, the market leader, now has between 500,000 and 750,000 connected home cus- tomers. Early on I'm guessing it wasn't clear which devices would be most successful. But as it turned out, smart thermostats proved popular and Comcast was able to credibly advertise to customers how it could help them cut energy costs. From there the brand stretch into energy was small. Within a few years of launch it had a deal with one utility to offer demand response on Comcast ther- mostats and a deal with another utility to resell core energy and PV. Comcast is not an isolated example in moving into energy. In Poland, most of the telcos, including Orange, offer energy. In Hungary, Deutsche Telekom's subsidiary Magyar Telekom was the poster child of telco expansion into energy until the govern- ment interfered with wholesale pricing. The difference is that in Poland and Hungary, telcos have had to make a big bet on energy, whereas Comcast has shown companies who might be more circumspect that energy entry can be done by gently pivoting through connected homes. I have talked about scope creep of insur- ance and telecoms companies, but could have told a similar story about retail, enter- tainment, internet giants or start-ups. As other industries reinvent themselves for a digital and connected future, the services that utilities make their bread and butter from will get caught up in what others can offer. A do-nothing approach to these trends risks loss of market share in core utility busi- ness. The alternative is to explore partner- ships, because the value in certain connected home partnerships has the potential to be significantly bigger than the sum of the parts. Susan Furnell is a freelance consultant specialising in connected home technology Connected home creep As other industries reinvent themselves for a digital and connected future, their scope creep will see them offering services in the home that are the bread and butter of utilities, warns Sue Furnell.