Telematics: Not Your Father's Auto Insurance
Insurance Experts' Forum, July 25, 2013
Auto insurance today isn't as simple as it used to be. Back "in the day" you contacted an agent, he or she put together a policy based on your car, factored in usage and history, and sent you a bill. Sure, they took into account tickets, points on a license, location, and related issues. However, it was based on groups, general assumptions, age, and other broad factors. It wasn't personalized about you and your driving habits.
Technology has changed that paradigm, making it an all new high-tech ballgame!
Telematics is based on the idea of the "connected vehicle," where technology is embedded in the vehicle and sends data and intelligence to an insurer on location, miles driven, vehicle condition and driving behavior.
Telematics is here, it's real, and it's growing. Auto insurers all over the world are implementing these technologies and creating new methods for pricing insurance based on individual driver behavior. While it goes by many names — black box insurance, smartbox insurance, usage based insurance (UBI) — the technological concept remains the same.
Telematics refers to the use of in-car installed and after-factory devices to transmit data in real time back to an organization, including vehicle use (e.g., miles driven, speed, and location using GPS), maintenance requirements, air bag deployment or automotive servicing. Telematics serves as the platform for usage-based insurance, pay-per-use insurance, pay-as-you-drive (PAYD) insurance, pay-how-you-drive (PHYD) programs for fleet insurance, or teen driving programs for retail business.
For this specific type of telematics (and there are others), the insurer is able to collect and analyze data from the driver's vehicle and/or mobile phone to assess the level of risk for that specific vehicle and driver. Rather than base insurance pricing solely on groupings and assumptions, pricing is based on individualized risk factors such as roads traveled, locations, specific behaviors such as speeding and stopping behavior, and more.
Furthermore, many insurers are beginning to look at telematics and vehicle data for claims to help assess what happened, that was at fault, damage and more. By doing so they are able to potentially eliminate fraud and make sure the right driver in the accident is paying for the damage.
According to Telematics Update, "Insurance Telematics appears to be at a tipping point, and is moving from a niche product to mass-market adoption in the United States and other key European markets." This is corroborated by Gartner's 2012 Hype Cycle for P&C Insurance which states that "telematics will have a dramatic effect on the overall auto/motor insurance industry during the next 10 years, revolutionizing it with the addition of new products that were not offered in the past and that are targeted at niche consumer groups."
So while it is not “mainstream” today, it means that if you're not in piloting or planning to be in the telematics game, you need to be and the time to prepare yourself and your core policy and claims solutions is now.
That was supported by Insurance Networking News which stated in an article that "the number of UBI subscribers is expected to double in the next three years in both Europe and North America."
This isn't to say that telematics doesn’t face some resistance. For one thing, many people don't want to be monitored. Echoes of Orwell's Big Brother can be heard quite loudly. Telematics Update also stated that: "the US-focused industry executives surveyed about the wider adoption of UBI identiﬁed privacy concerns as the most serious immediate impediment."
Others have pointed out that this privacy concern is often generational. Younger drivers don't have as many privacy concerns as older ones. They are used to being monitored by GPS locators on phone, giving up information freely online, and being generally monitored by all sorts of companies. Therefore, the shift is happening and you need to be prepared.
"Far from being reluctant to share location-based driving data, drivers may be increasingly open to this as it makes cover more affordable. Telematics offers the potential to earn lower premiums by monitoring driving behaviour and will help insurers better understand risk exposure by providing details not only of the miles travelled, but also the roads used (the road classification) journey time and driving behaviours," reported Computer Weekly in the UK.
Another sticking point is technological. Telematics means that insurers need the ability to collect and analyze this massive influx of data quickly and accurately. Putting a black box in a car is one thing, but gathering and using the data is something entirely different. As you gain greater amounts of data within your system about the driver and his or her behavior, you need to be able to evaluate the risk you are underwriting and price accordingly. No more guessing or assumptions based on general statistics and tables. This is the specific risk associated with a specific driver that is your customer.
As technology costs decrease and a demand for cheaper premiums increase, it's created a perfect storm for telematics-based policies. Insurers want more customers while they more accurately manage risk. Insureds want lower costs and more choice. It may not be for everyone but telematics is becoming an increasingly essential offering.
As David Smith, CEO of Global Futures and Foresight, shared at our recent customer advisory board, “When we get new technology, first we do things differently, then we do different things.” Such is the case with telematics. It’s a matter of not just doing things differently but doing different things with new products, services and more. That is the power of this new technology that is still unfolding.
Telematics is here to stay. Now, it's up to you to start planning, create a roadmap, and find the right partner to help you on that journey.
Denise Garth is the executive vice president of strategic marketing and industry relations, and global head of market strategy for Innovation Group North America. She can be reached for further comment or information via email at email@example.com.
Denise Garth is the executive vice president of strategic marketing and industry relations, and global head of market strategy for Innovation Group North America. She can be reached for further comment or information via email at firstname.lastname@example.org
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