Telematics: Implications and opportunities for auto insurers
Jamie Yoder, principal, PwC's Diamond Advisory Services, on how telematics can redefine the carrier-customer relationship
Insurers are competing for customers in a competitive auto insurance marketplace, leaving carriers looking for ways to differentiate themselves among customers. It's no secret that price plays a significant role in the purchasing decision, and carriers are now beginning to look at telematics as a way to provide a more transparent and competitive pricing solution. Above and beyond pricing and transparency, telematics provides an opportunity to redefine the broader relationship between the carrier and customer.
Telematics service providers have introduced applications to reduce fraud and theft and improve driver safety. Stolen vehicle recovery, automatic crash notification, and vehicle data recording can also minimize direct and indirect costs for providers, while providing effective risk management. Access to vehicle-specific data from telematics applications will help insurance companies fight fraud and provide greater security.
The telematics ecosystem is complex and continuously evolving. By forming strategic partnerships with key technology enablers, insurers also can begin to offer truly unique products and services. Combining standard coverage with features never before associated with car insurance—navigation assistance, traffic avoidance, itinerary planning, and vehicle diagnostics, for example—could provide first-movers an opportunity to drive market expectations and capture future growth. Insurers that offer truly customized and personalized services through telematics can create a unique customer experience.
A telematics strategy's viability relies on three main elements:
• Incorporating telematics as a primary component of an insurer’s broader corporate strategy
• Forming strategic partnerships with vehicle manufacturers, smartphone developers and data providers to create and implement new value-added services
• Integrating telematics data, information and services into the core internal marketing, segmentation, underwriting and claims value chains.
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 telematics strategy will depend on the following:
1. Although the value proposition for insurers may be fairly straightforward, they will need to make the one for consumers clear and compelling. They will have to provide consumers appealing services and features in addition to more accurate pricing and coverage.
2. The strength of the consumer value proposition also will depend on how effectively telematics platforms yield real-world benefits. Connecting telematics to the driving experience will enhance the usefulness and relevance of the platform to consumers.
3. Insurers should proactively develop and improve features and capabilities. As market-transforming technologies continue to evolve at a rapid pace, insurers should focus on ever-shifting consumer expectations.
4. If deployed effectively, telematics could change the way consumers view insurance providers. Differentiation in the industry could be based less on commoditized factors like pricing and coverage and more on less imitable qualities like safety, efficiency, and convenience. First-movers will possess a significant advantage in shaping this new relationship with consumers.
5. By providing customers complementary services and support, insurers have the opportunity to create a new and tangible set of consumer benefits, and thereby generate and sustain a long-term strategic advantage.
In addition to insurers positively differentiating themselves with customers, telematics technology also creates significant opportunities to fundamentally redefine the customer experience. The recent evolution of smartphones and mobile applications can help insurers improve their service via a mutually beneficial and reinforcing relationship with the consumer.
Jamie Yoder is principal, PwC's Diamond Advisory Services.