Future proofing telematics for the insurer, explored by Andrew Williams.
As the era of the connected customer continues apace the insurance industry faces challenges from a number of different directions. So, what are the key requirements of future telematics platforms fit for the digital and connected car age, particularly when it comes to supporting the delivery of novel automotive insurance products? How best can telematics platforms be used to create inter-operability across varied data sources, like dongle, vehicle embedded and mobile, to deliver next-generation insurance solutions and what are the risks for insurers of doing nothing, or being overly cautious, in future proofing their telematics systems in advance of the connected car age?
According to Katie DeGraaf, global telematics sales and delivery lead at Willis Towers Watson, next-generation telematics platforms will need to be able to handle complex, multi-source, non-uniform data from the wide variety of sensors that will contribute to insurance products. In addition, she believes they must also be capable of providing relevant information “at the various points of an insurance lifecycle, such as at point of sale, renewal, during the policy term and if a claim occurs”.
She added: “They must also turn this robust data into something meaningful for both insurers and consumers. As an example, we have analysed telematics scores that are actually less predictive of loss than just mileage alone. Leveraging digital and connectivity platforms presents the opportunity for insurers to engage consumers in a new way. In order to do so effectively, consumers must receive the right information at the right time in the right format.”
When it comes to interoperability, Thomas Hallauer, research and marketing director at Ptolemus Consulting Group, highlights the fact that the insurance sector currently faces issues related to the fact that a driver score needs to be equivalent whether the data comes from one source or another.
“At the moment, this is solved between BBX[black box], dongle and mobile,” said Hallauer. “We don't have an OEM data-based UBI product to compare yet. I suspect when an OEMs data is used for UBI purposes, they will create a different value proposition or offering so it doesn't have to compare directly with existing UBI products and the scoring attached. Also the target markets will be different.”
Meanwhile, DeGraaf predicts the emergence of two co-existing models. One is the data exchange model, which she says is familiar to insurers because it relates to “how they traditionally utilise factors like insurance score”. In this model, the data source supplies telematics data to an intermediary that pools the data. When a consumer comes to the insurer with a request for an insurance quote, the insurer will consult this data pool to learn about the driving habits of the driver before offering an insurance product and price.
“While this model is comfortable to insurers, it's a challenge to those with telematics data who desire to offer benefits to their consumers. Consider the example of where a bad driver finds out they've received a surcharge because their connected car platform has contributed to this data exchange. Also, it will take a significant time to achieve enough contributing data sources for insurers to get a decent match on new drivers,” she says.
For these reasons, DeGraaf believes that an alternative model, known as the lead-generation model, appears to be “gaining steam in the short term”. In this model, data sources like smartphone apps and connected cars or an intermediary, is “partnered with insurers to identify the type of drivers and incentives they are able to offer”. The consumer is then offered relevant, personalised insurance offers based on their actual driving behaviour and given the opportunity to accept one of these offers before being connected to the matched insurer for closing. “The insurer, therefore, receives a pre-qualified lead matching their exact specifications. In contrast to the data exchange model, this model positions the telematics data suppliers to offer a clear, immediate benefit to the driver,” says DeGraaf.
Looking ahead, although he warns against the tendency to overhype UBI, and points out that it remains a very small part of the market, albeit one that is expected to grow, Hallauer admits that insurers “need to start learning now” or risk losing out to the competition for “specific new value propositions, especially around risk management and claims management”.
DeGraaf agrees that, although there will be a market for the unconnected for some time, the reality is that people, products and service providers are changing and insurance will not be immune to this tide. “While consumers still value the relationship with agents, they also expect a digital experience with flexibility and customisation. Already, insurers with successful telematics programs are reporting impressive experience in their telematics books, including 5% increase in retention and 30% improvement in loss ratio. So these better performing, sticky customers are being locked up with aggressive telematics discounting,” she adds.
06 Sep 2017 - 07 Sep 2017, CHICAGO, USA
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