If there is any doubt that Telematics is becoming a disruptive technology in insurance, one only has to look at what is happening at its edges. Some folks are planning ways to work around it, while other folks are discovering it takes them into new enterprises. Question: What do you think it will it do in Canada?
The premise of Telematics in insurance is simple enough. A device is placed in a vehicle to provide information on the its use: where it goes, how fast, what braking activity, etc. These data are then used for underwriting, rating, and claims for that vehicle as well as aggregation of data for analytic purposes.
Its impact is something else. Two recent stories illustrate some of the extremes.
Alternatives to In-Vehicle Devices to Lower Costs
We have read a lot of what is being written about Telematics. One thing is conspicuous by its absence: no one is suggesting implementation is a small or inexpensive endeavour. Costs of entry can be steep, and they do not decline. There is no fixed road map, and missteps can be costly. The current industry leader – Progressive – had a multi-year false start before arriving at its current programme format.
To address the cost issues, Roger Burkhardt, president and CEO of EagleEye Analytics, is proposing an alternative targeted at mid-sized carriers. Writing in PropertyCasualty360.com, Burkhardt says, “One option for carriers is to forego any kind of in-vehicle equipment and use predictive analytics to determine more accurate pricing.”
Burkhardt contends this offers many of the benefits at reduced costs: “The carrier is using micro-segmentation to predict mileage and risks associated with driving patterns, and fine-tuning its pricing and discounts to remain competitive and retain its best customers.”
These analytics would require sophisticated models and micro-segmentation of risks, but could have the additional benefit of attracting customers who were averse to having tracking devices in their vehicles.
Alternative Business Models to Leverage Investments
While some insurers are interested in finding ways to reduce costs of entry to Telemeatics, Richard King founder and CEO of UK based Ingenie transformed his original business model from a technology company to an insurance underwriter in order to to leverage the unique elements offered by Telematics
Insurance & Technology reported on King’s presentation at Celent’s recent “Creative Disruption: Technology and the Future of Insurance” meeting. King formed a company to be a supplier of Telematics technology to insurers. The plan hit some roadblocks with insurers who were turned off by some less than stellar results by early adopters such as Norwich Union.
King countered by launching Ingenie to be the risk taker as well as technology supplier in December 2011. It uses Telematics to underwrite hard to insure drivers, focusing on 17-25 year old drivers. One tactic is to give feedback to these drivers, based on the Telematic data. Ingenie has taken to using social media style messages to carry the driving tips and perform customer service functions.
One of King’s investors in the endeavour is Gary Lineker, a well know British ex-soccer player and current broadcaster. His involvement is drawing attention of the target audience. Lineker is quoted in a recent Telegraph article: “What ingenie is offering is a real alternative to sky-high premiums, based on the concept that the better you drive, the less you end up paying.”
What does all this mean …
Disruptive technologies threatens some existing business models while causing other options to open. It seems evident that Telematics for insurance is doing just that.
Our question to you: What do you think this will do to and for the auto insurance landscape in Canada. Leave your comments below.