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Telematics: How To Get Around It, How To Transform With It

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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.

2 Comments

Blair Currie

As a telematics service provider, IMS (www.intellimec.com) has a bias towards a technical solution. That said, telematics is not a panacea and is not the only way for an auto insurance company to gain a lasting competitive advantage.

Clearly one way for an auto insurance company to innovate is to look at how different kinds of behavioural data – both derived from telematics and other sources – and assess how it can supplement, or even replace, traditional proxies for driving behaviour.

For example, one area of behavioural data that does not seem to be considered is taking a family’s history of driving into account as a predictor of driving behaviour for the individual. This type of thinking is grounded in the idea that different cultures and different families have different levels of driving culture.

Consider these two extremes: in Germany, there is a driving culture that respects different speeds along the highways or Autobahns. German drivers who are driving smaller displacement vehicles, tend to yield more readily to faster, more aggressive drivers, than in other countries.

At the other end of a spectrum are drivers from newly emerging markets such as Vietnam who have grown up with a bicycle culture, yielding to a motorcycle culture and only recently yielding to a car culture. For these drivers the respect of staying in one’s own lane is an emerging concept.

While profiling based on country of origin or race could clearly prove a disaster (and would almost certain be against the Charters of Rights and Freedoms), predictive analytics based on family history might be very effective and valuable. A smart insurance company could start with the behaviour of parents, which can be indicative of the driving behaviour of their offspring. For families that are courteous on the road, this becomes “normal” to their offspring. And for families where the parents are aggressive drivers this then becomes the “norm”.

The type of thinking that families have influence on behaviour is followed in other industries such as packaged goods where I’ve personnally seen videos of grandmothers, mothers and grandchildren brushing their teeth in exactly the same manners – because parents are the source of learning about personal care.

The real point to be made here is not that family history is a good predictor of behaviour. The real point is how can the auto insurance company embrace innovative thinking. To have noticeably different results, a brand must do something noticeably different. Adding predictive modeling that is based on behavioural analysis is one way to accomplish – whether backed by telematics or not. But one has to feel the need to change to start to change.

As Progressive found out, change is difficult and not always successful. But with a clear vision and the will to succeed, change is possible. And over time it is necessary. It also helps to have a partner that can use technology as well as new thinking, to help you achieve different results.

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Reeder

Telematics has its place in rehabilitating drivers who can not afford premiums because of their driving habits or inexperience.

Additionally as is being done in Quebec, provide this solution to the youngest and/or newly licensed drivers as a feedback loop using a reward or penalty system for their participation. This could be in the form of premium adjustments or gas vouchers etc. This should help reduce premiums for all drivers by making roads safer.

I believe Canadians will wait and see what the rest of the world does before letting “big insurer” take a spot in their driver’s seats.

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