Would you let your home insurance company monitor your house?

In October, United Services Automobile Association (USAA), the country's leading auto, home and life insurer for military personnel, received a patent for a data recorder that can be installed in a home for observation.

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USAA's device will record conditions that "have led to damage or destruction of the building" or to "forecast the possibility of future damage or destruction." The device can track the temperature, wind speed and mechanical vibrations as they affect the house, as well as humidity, which could cause mold in the walls.

Sounds like a good idea? Yes, for the insurance company, but not necessarily for the homeowner.

Through the looking glass

house monitoring deviceA home data recorder isn't a new concept. Companies like ADT and Tyco already provide sophisticated electronic sensor technologies to remotely monitor almost everything that happens in a house or office, including vibrations that could indicate a break-in. But USAA's device offers increased leverage for the folks at the insurance company by giving them a looking glass into your house.

Based in San Antonio, privately held USAA is owned by its policyholders and did not want to discuss its new product. Spokesperson Rebecca Hirsch said USAA would talk only about its innovation efforts in general, and not this patent in particular.

Neither the Property Casualty Insurers Association of America nor the American Insurance Association, both of which represent property-casualty insurers, would comment either.

Telematics for houses

Robert Hartwig, president of the Insurance Information Institute, which also represents the industry, said that even though he hadn't heard of the product, "it sounds like telematics for homes." But he did predict that "this device will aid insurers in underwriting property."

Telematics devices are plugged into cars and offered by auto insurers such as Progressive, which calls its on-board monitoring system Snapshot. This monitoring device records people's driving habits: distance driven, time of day, amount of times the brake is used and how hard. Driving at night when fewer cars are on the road usually lowers rates, as does avoiding the start-stop braking that can lead to accidents.

This invaluable information is used to price "pay as you drive" or "usage-based" auto insurance policies.

Another black box?

Consumer advocates agree that this could be a boon for home insurance companies. "By utilizing tools like this . . . insurers can better manage their risk exposure," says Birny Birnbaum, executive director of the Center for Economic Justice in Austin, Texas.

But insurers could also use that data to make decisions on policyholder claims and underwriting, as well as other decisions.

"The recent history of insurers' use of data mining indicates that insurers are using these new technologies to simply exclude certain risk exposure," says Birnbaum. In simple terms: If the insurer detects high winds around your house, it might cancel the policy.

Robert Hunter, the director of insurance for the Consumer Federation of America, is also suspicious. "Insurers have been using more and more black boxes [technology which is only understood by insurers] to systematically underpay claims," he says.

Katrina could have been different

USAA's data recorder might have helped insurers expedite claim payouts after Hurricane Katrina in 2005. At a cost of $110 billion it is the most expensive storm in history.

There was constant wrangling between insurers and policyholders across the Southeast, from Florida to Louisiana, as to whether Katrina's 125-mile per hour winds had knocked down coastal homes or whether they had actually been flattened by the 30-foot tidal surge. If the cause was wind, then home insurers such as USAA would be responsible for claims. If the cause was water, then the federal flood insurance program would have to pay those with flood policies.

Watching you watching me

Consumer groups say that it's hard to find a benefit for homeowners who install a home-data recorder like USAA's unless, like Progressive's Snapshot program for usage-based auto insurance, the insurer offers a discount to those who accept. In which case, "this technology offers the promise of insurers moving towards a greater partnership with consumers to promote loss prevention," says Birnbaum.

For example, if a homeowner was advised to lower the humidity after an event such as a flood, he or she could save their walls, flooring and even prevent illness caused by inhaling mold spores. But this would require communication between the insurer, which needs to monitor the device regularly, and the homeowner. Otherwise, it is similar to the black box in an airplane, which can only tell investigators why the plane crashed after the fact.

Consumer advocates warn that homeowners should be wary of devices that monitor you or your property without any benefit to you.