Mobile Telematics: Implications and Opportunities for Insurers
Insurance Experts' Forum, March 10, 2011
Most insurers have struggled to make telematics, the integrated use of telecommunications and information in cars, an integral part of their core business strategies. For the most part, it was due to the cost of the telematics device or platform and the inability to create compelling value for the consumer that includes sharing driving data as the basis for pricing and underwriting.
Now, with advances in automotive technology and smartphone applications, there is a big opportunity for insurance companies to get in the action.
The insurance industry is constantly looking for opportunities to reduce theft and improve driver safety. Mobile telematics service providers have introduced applications that are able to connect a car’s computer to a mobile phone for the transmission of crucial information, including securing a car and monitoring key vehicle gauges. Stolen vehicle recovery, automatic crash notification and vehicle data recording can minimize direct and indirect costs for providers while providing effective risk management. Access to vehicle-specific data from mobile telematics applications also can help insurance companies fight fraud, and basic vehicle data can help determine the cause of an accident or why a car has disappeared.
As part of a broader mobility strategy, telematics has the potential to fundamentally transform the customer/insurer relationship. The traditional, reactive touch points that mainly occur after accidents could become proactive, preventative interactions because of add-on applications. The ability to improve driver safety, minimize risk and decrease the likelihood of claims is an opportunity any carrier would welcome.
Insurers should consider creating strategic partnerships with technology enablers in an effort to begin to offer truly unique products and services. Combining standard coverage with features never before associated with car insurance, such as navigation assistance, traffic avoidance, itinerary planning and vehicle diagnostics, will allow insurers to offer truly customized and personalized services.
An ultimate goal for insurers is to leverage mobile telematics as a key component of their core business strategy. Insurers typically calculate premiums via several common risk factors. It is very difficult (or near impossible) to factor into premium calculations each potential customer's unique driving behaviors or potential risks. Mobile telematics can completely transform this model because it will provide insurers access to actual, real-time driving data and habits. This information will help insurers more accurately measure and price premiums, customize services, improve safety and reduce claim costs.
Recent technological advancements, widespread adoption of smartphones and evolving vehicle communications systems represent a unique confluence of trends that present significant opportunity for insurers. The overall success of a mobile telematics strategy will depend on an insurers ability to make a case that is clear and compelling to its customers as well as get in the game before its competition does.
Jamie Yoder is a principal at PwC’s Diamond Advisory Services. Tom Kavanaugh assisted with the development of this article. Kavanaugh is a director at PwC's Diamond Advisory Services.
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