Celent Says

Telematics is Back ... and This Time, It’s Here to Stay

Catherine Stagg-Macey
Insurance Experts' Forum, May 18, 2011

The use of telematics devices in insurance has been around for several years, with companies like Aviva (UK) and Progressive (U.S.) taking on the pioneer role in early 2000s. But there have been many dissenters.

One large insurer told me that they didn’t see the point in telematics offerings, and it would cannibalize their current motor book. And so it seemed whilst top motor insurers own the majority of the market, we would see little change in Europe.

Then along comes that pesky driver of change—regulation. The European Commission has already mandated new cars manufactured in Europe must have a black box device. This is part of a pan-European initiative called e-Call, which links up emergency services across the region. So if you are holidaying in France in a new car and have an accident, your telematics device makes a call into the local emergency services. The idea being that quick responses to accidents will save lives.

Earlier this year came another directive. The European Court of Justice ruling on banning the use of gender in insurer pricing is to come into effect in December 2012. The furor over this announcement from the insurance industry is understandable, and will require a fundamental change in how risk is underwritten. The immediate effect is that women will see their premiums rise by as much as 50%, which has consumer groups up in arms.

And so we come back to the topic of telematics. The convergence of these factors makes telematics more viable, if not the only way forward for motor insurers.

The industry has learned much about telematics since the early part of the last decade. There are a variety of ways to gather data from black boxes, and not all data is required to be kept and stored. Consumer attitudes, whilst still varying regionally, seem less hardened to the idea of being monitored. There are several companies offering turn-key solutions to insurers—from installing the device, collecting the data and providing the analytics.

Perhaps the biggest shift is from what has been called pay-as-you-drive to pay-how-you-drive. The first model based on utility pricing can’t take into account the difference in risk between young and experienced drivers. It doesn’t take into account the different risk of country roads and highways. Behavourial-based pricing is the evolution from the utility model.

It’s now the right time to review telematics. Niche brokers and insurers will look to use this proposition as a market differentiator, and the large motor insurers will be required to review telematics to be able to meet impending legislation. Celent plans to write more on this in the summer.

Comments (1)

Thank you, Catherine. Usage-based Insurance (UBI) is being offered by more and more companies because the consumers want it. There is a question regarding how much personal information consumers would agree to be collected by their carrier. Since most UBI solution providers started with fleet management solutions, their systems collect many aspects of how you drive and less of how much the vehicle is being used. All these data are very helpful in assessing risk but the consumer is not accepting it so easily. The fact of the matter is that a pay-how-you-drive policies sold by Norwich Union (Aviva) in the UK had no demand. Progressive in the US appears to lead the UBI market but take a look at Snapshot, their newest product. They basically stopped recording most of the information they did with their previous products. Snapshot records mileage, time and acceleration. The future of their OBD II-connected might night be clear since GM and Toyota are talking about disabling data receiving via the OBD II port.
The best solution is a self-installed, self-sustained systems not connected to any of the vehicle systems. Such a solution is offered by PayGo Systems.

Posted by: Michael E | May 20, 2011 2:15 PM

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