Smart Homes, Dumb Insurance: The Need for Standards and Qualifications in a Connected World

Disclaimer: The insurance and construction industry regulations may vary across countries. So some parts of this article may not be relevant in certain areas. However, the questions raised in this article highlight the need for insurance to adapt to new technologies. This article may also provide a general overview, though it may not be entirely accurate. I hope you’ll get my point here. I'll begin with a bold statement: Smart homes are not easy to insure, and currently, it may even be impossible to properly insure them.

But before we dive into the challenges of insuring smart homes and by extension Smart Cities, let's take a trip back in time. This is the story as I witnessed it in France when I started to work as a sales guy in a Home Theatre shop in Paris in 1992. Yes, by that time, it was called “Home Theatre”

Prior to 1990, the average Hi-Fi shop primarily sold speakers, amps, and turntables. These shops would sometimes deliver goods and set them up at a client's home. The shop's insurance policy was designed for this type of job: sell, takeout, and maybe deliver.

Then something changed. In the early 1990s, Hi-Fi shops becomes Hi-Fi & Video shop as they began to sell Home Theatre Systems. The Dolby Surround sound revolution required additional speakers to be installed and wired throughout the living room, while rollable screens and heavy CRT projectors had to be mounted on the ceiling. A qualified professional from the construction industry (typically a proper Electrician) would have certainly been the right person to install these systems, but the Hi-Fi guys known to be handy did the job.

To solve the issue of multiple remote controls cluttering the coffee table and the long sequence of buttons required to launch the home cinema, programmable LCD screen remote controls emerged. So, naturally, Hi-Fi and Video guys went with laptops to clients' homes to program these state-of-the-art remote controls. This was long before any iPhone, and the Hi-Fi guys were keeping up with new technologies, slightly moving into the IT world.

Without realising it, the Hi-Fi guys were performing electrician tasks in people's living rooms—installing high-voltage cables, drilling holes in walls and ceilings, mounting heavy speakers, and even controlling the lighting. They did this regardless of whether their professional insurance policy covered incidents like a projector falling on a client's head or potential harm to themselves during the installations. And if they would have asked their professional insurance to cover them for this kind of job, the insurances companies would certainly have asked them to pass some kind of construction industry qualification, which they probably wouldn't do. Of course, from the client's perspective, their home was likely not covered if any unqualified and uninsured person came to perform electrical work and install heavy equipment on walls or ceilings. It’s a little like when, in some cases, your insurance won’t cover your car because you customized critical components. People always forget that you can’t mess with your insurance as they will always find irrefutable excuses not to pay.

At some point, clients requested dedicated home cinema or media rooms. Sensing good business opportunities, Hi-Fi and Video shop owners created specialized departments in their shops to build home cinemas. Some even opened dedicated home cinema shops, calling themselves "Custom Installers." Everything was new, so the Hi-Fi and Video staff learned on the job, sometimes hiring handy individuals to help with hardware tasks. No specific diplomas or qualifications were required, and even if they wanted them, none really existed at the time. In fact, at that time, the right thing to do would have been to ask a qualified electrician to perform all the hardware jobs and let the Custom Installers just set up the system. But doing that would add a substantial cost to the system, and Custom Installers didn’t really know how to explain this to the client. To the Custom Installers' credit, I think no one really thought about this. If they could do it themselves, they would.

To create a dedicated home cinema room, custom installers had to build raised platforms for installing different rows of cinema seats, install and control lights, electric cinema curtains, acoustic panels, and automation systems. Within a decade, the Hi-Fi guys had become part of the construction industry, sometimes performing significant modifications to clients' homes with professional insurance policies designed for takeout stores.

The second revolution came with the internet. Gradually, in the early 2010s, Audio and Video equipment became connected. So, Custom Installers (remember, the Hi-Fi guys) had to learn IT skills, adding routers, switches, and Wi-Fi systems to their repertoire. But as none of them really had any IT background, they could not think about the good practices in use in the IT world in terms of security, updates, audits, and maintenance. On top of that, it was a gold rush, as clients always wanted bigger screens, more speakers, more power, more automation, and more flashy features, so everyone was busy delivering, regardless of potential issues. By that time, the right thing to do would have been to hire an IT company with all the necessary network certifications and insurances. But again, it would have been a significant cost on top of the bill, knowing that by that time, IT companies were almost exclusively working for the corporate world with corporate prices that wouldn't fit in a consumer market. And once again, to Custom Installers' credit, no one really thought about it.

Then something else happened: Happy with their new skills, custom installers seized another business opportunity. If they could control the home cinema room, why not control the entire house and distribute audio and video everywhere? Keep in mind that this was the beginning of the internet, so streaming services didn't exist yet, and TVs weren't smart, so miles of coaxial cables were needed to distribute audio and video signals throughout houses. In the end, Custom Installers, yes, the ex Hi-Fi guys, attended early morning construction coordination meetings on site with the same authority as electricians or plumbers, but without specific grades, diplomas, qualifications, trade associations, standards, or professional insurance. Everything was learned on the job, and at this stage, it's important to understand that all of this happened in parallel with electricians who didn't want to be involved in these new, complex technologies.

To this day, I'm still amazed that no site supervisor or architect at the time ever asked these guys if they had any qualifications or specific insurances just to be on a construction site…

And here is the simple the factual story of how thrilled Hi-Fi professionals with no real qualification and professional insurance became custom installers and ultimately took over a large part of the home automation business. Till today, many Custom Installer across the world still operate like this: They just set up a small business under “Sales and installation of Hi-Fi equipment” (for whatever it means to an insurance company) and they start to work. This story can likely be applied to many other industries. It's quite possible that the first houses with electricity were not covered for it. Those electricians were all learning on the job about this new, magical technology. Then they had to create a recognized industry with sets of rules, standards, norms, regulations, trades, schools, and qualifications that insurance companies could use to build policies. It's always like this: Smart and enthusiastic people explore new things, pave the way, create an industry and then insurance companies take all of this into consideration. And the Hi-Fi guys did a great job.

The challenge is that, without industrial standards and best practices, no insurance company can build a proper policy. And today the Smart Home business does not have any of these.

The third revolution is now underway, as people buy DIY smart home products and turn their homes into smart chimeras without any understanding of the consequences of what they're doing. It's now possible to control almost everything in a home, from the tap on the sink to the stove, kettle, microwave and rice cookers, lights, door lock, or HVAC system. Everything that can burn your house is now connected and subject to act strangely. Think about this: The average home now has more connected products than a small business, but without any security policy and the IT guy in charge is a teenager who’ll take any shortcuts in the setup of the local network to play online games. SSIDs are usually the family name, and passwords (that will stay the same forever) are often the dad's mobile number, making low-skill attacks easier for the average bad guy.

Let’s consider the following scenario: Mr. Smith comes back to his house and realizes he’s been robbed. The burglars left no traces as they simply entered Mr. Smith's mobile number as the Wi-Fi password. Technically, we can discuss if it can be considered as hacking. Then they opened the smart door, exploiting a well-known vulnerability of the home automation system and disabled the smart CCTV. This unfortunate vulnerability was never addressed by the manufacturer, as the product was discontinued years ago and the Custom Installer in charge never proposed the client a maintenance plan where they’d regularly audit all products and replace discontinued ones with more recent and up-to-date versions. In this scenario, the insurance company may argue that the homeowner did not maintain their home in “good shape," and therefore may not cover the damages. However, the homeowner may argue that there were no clear recommendations in the insurance policy regarding Wi-Fi security and maintenance of the home automation system. The more you have connected objects, the more your home is at risk as every single connected object can be hacked and used to fight back against you.

The cherry on the cake and ultimate non-senses are now so call “Smart Insurances” that give discount if people use Smart smoke, leakage or intrusion detectors without requiring client to have very strong Wi-Fi password that must be changed every 3 months. On top of that, these smart detectors should not share the same home network. In terms of risks management this is ugly, and it looks like the marketing guys went totally freestyle. After the Green washing, we now have Smart washing. I have nothing against smart security products, but it should be installed properly. In the corporate world, the same products would have to follow very strict installation and maintenance process performed by certified professionals.

It's time to create a worldwide smart home trade that would be part of the electrician trade, complete with its own universities delivering state-recognized qualifications and a trade association that would issue rules, standards, and regulations for the insurance industry to use when building policies that consider the new smart risks. And if we can’t do this properly for homes, can you imagine the challenge we’ll have with smart cities.

In conclusion, as we move towards increasingly connected and smart homes and cities, it's essential to create a recognized industry with clear rules, standards, and qualifications. This will allow insurance companies to build comprehensive policies that consider the risks associated with smart homes and their interconnected technologies. It's crucial to adapt to these changes and ensure that both professionals and homeowners have the necessary knowledge, qualifications, and insurance coverage to protect themselves and their properties in this ever-evolving technological landscape.

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