The recent Insurance Telematics USA 2012 Conference demonstrated that it is possible to measure,and possibly predict, virtually everything about the use of a vehicle and the behaviour of a driver, and there is lots of activity. An open question: where will the scheme take hold first.
No Shortage of Enthusiasm
One thing is certain: There is no shortage of enthusiasm by insurers and suppliers. Telematics Update welcomed 500 attendees to Chicago for the two-day conference, now in its third year. Attendance has more than doubled in each year. And there was good turnout from Canadian carriers and suppliers.
Keynote speaker Robin Harbage, from Towers Watson, said that usage based insurance (UBI), driven by telematics enabled vehicles, is coming rapidly to the industry and will soon be a ‘must’ for US auto insurers seeking to control costs, improve profitability, and differentiate themselves in the market place. Harbage noted that UBI creates a number of value points beyond increased underwriting precision: better drivers tend to self select into UBI schemes, telematics reinforces the good driver by providing feedback on driving activity, and records of incidents can improve claims handling.
Vendor Ecosystem Becoming Robust
As a result of insurer interest, a wide variety of suppliers are coming to the market. These range from point solution suppliers (devices to be put in vehicles, telecommunications tools, data management software and services, actuarial consulting) to consultants offering end-to-end solutions. According to Telematics Update in its report on the conference: “the ecosystem has become robust, with a wide variety of vendors running the gamut from chips and hardware through platforms and services to software development.”
This vendor enthusiasm is driving strong competition in the market. Several presenters noted that this will drive down the base costs for devices and communication.
The proliferation of vendors and approaches is creating its own problems. An overarching question at the conference was: How will insurers effectively manage and use the large and diverse data sets produced by the devices.
It appears that anticipated demand is producing solutions to this as well. For example, immediately before the conference, Towers Watson and Hughes Telematics announced a strategic alliance to provide personal lines U.S. auto insurers with comprehensive data services for UBI programs.
So, What Comes Next?
All is not well mapped out, however. The technology and processes involved in rating and underwriting are the subject of several high profile patent infringement lawsuits initiated by Progressive Insurance. A panel at the conference provided suggestions, but emphasized that the outcome of the litigation would have significant impact on the implementation plans of companies.
As a result of the uncertainties, there remains open questions on the penetration rate and direction of implementation activities. Several presenters, including A.T. Kearney, Inc. , are projecting that a ‘tipping point’ will be reached in 2014, when UBI will be used in 2%-3% of US auto underwriting. The same analysts are estimating penetration of 15%-20% by 2020.
However, other presenters and attendees suggested that this is very conservative. Zurich’s Jim Noble, who presented on his company’s experience in implementing telematics with commercial fleets (see our post on this), indicated that commercial lines telematics use will approach a penetration rate of 50% over the next five years. On this basis, commercial lines may take a leadership position in implementations.
Interestingly, when we asked you about penetration in a recent poll, you felt that less than half of the industry would be using telematics for automobile rating in 5 years.
So here’s our questions for you: Will Telematics and UBI in Canada follow the US in hitting a tipping point? Assuming UBI takes hold, which line of business – personal or commercial – will lead in Canada?
Drive your point home by leaving a comment below.