Some of us may not want to admit it,but we may need to be incented to drive better. Response to this seems to be leading to lower insurance rates for a typically expensive category of drivers. Our question to you: as good as this seems, is the change sustainable without costs exceeding value?
Telematics as a social initiative …
Back in April, Industrial Alliance launched Mobiliz, which the insurer described as “a societal initiative aimed at improving driving behaviours and combating the speeding plague among drivers aged 16 to 24.” It set our to achieve this objective with the use telematics devices to base premiums for the younger drivers “on the drivers’ behaviours (rather) than on their being part of a specific age group or on their claims history.”
As further incentive, the Mobiliz program offers a free one month trial of the service and if, after the first month, the driver adopts ‘responsible’ driving behaviour, the website promises “You will get up to 25% discount on your premium and your mileage.”
Does this not-so-subtle approach work? First results are now in and, in a press release, the insurer reports, “52% of young insured have already improved their driving behavior thanks to this innovative program”.
As or more significantly, in our view, Michel Laurin, president and CEO of operations for Industrial Alliance, Auto and Home Insurance Inc. is quoted in the release as saying, ““In addition to this enviable performance of Mobiliz’s participants, it should be emphasized that the majority of them keep pace and keep improving steadily,” adding that the results, “confirm that the positive reinforcement program works and it brings real behaviour change among young drivers”.
Incentives beyond lower premiums ….
Industrial Alliance is the first insurer in Canada to take this approach with younger drivers, but there is a similar model in the UK which is extending incentives beyond premium discounts. Back in September, we blogged on activities of ingenie, an insurer set up to target young drivers with a similar approach. The premiums are adjusted frequently (every 3 months) based on driving behaviour, and the website explains how feedback is provided to the driver through social media, using a green, red, yellow coding scheme.
ingenie is extending its incentives by partnering with a driving school and with Vauxhall, a car manufacturer with “a city car, the Adam (launching in 2013) whose trendy appeal, affordability and low insurance grouping makes a perfect package with ingenie.” It seems there are lots of benefits being offered for a driving group that was not typically popular among insurers.
Is the value sustainable?
So, it seems that younger, male drivers can be led to better driving behaviour with telematics driven incentives. However, these schemes are still in the early days. As the Mobiliz data suggest, 48% of the drivers haven;’t got the message yet.
We wonder if the behaviour change is real and sustainable and actually lowers claims costs, or will drivers continue to look for premium and other incentives in excess of the benefits offered.
What do you think? Leave a comment below.
This post is interesting as it covers off a number of areas where we think that telematics is a disruptive force in the insurance business. As such, it can provide advantages to those who embrace it.
In answering the question “Is the value sustainable?” we think these are some of the permanent changes that can result from telematics:
1.) Driver behavior is established early and drivers do not change.
Some of the initial telematics programs are based on the thinking that most drivers are creatures of habit, so once you capture 2-3 months of driving behavior then you “know” the driver. While this thinking makes for a good business model (because you can cycle a single device to a number of drivers) it does not take into account that knowledge of a “placebo” device can improve driver behavior because they know “Big brother is watching”.
IMS thinks that driving behaviour can be modified by sharing the data of his/her driving behaviour, ranking the driver against his/her peer group (oddly enough up to 91% of drivers think they are ‘above average’)to show how they can improve through on-going coaching and tips. Accordingly we produce weekly reports for insurance companies to share with their policy-holders. Potentially these reports could indicate when a policyholder might be in a position to discuss a lower rate with his/her auto insurance provider.
IMS also believes that if a device is removed from the vehicle that a number of policy-holders will revert to bad habits over time. So we think it’s important to have longer term continuity of use.
The argument then reaches a point when having a device installed becomes a “new normal” and behaviour has stabilized. We think that could potentially happen but at the same time, there will be increasing uses for in-vehicle connectivity. If so the auto insurance company can also “rent” this space to other service providers e.g., infotainment companies and others, eager to get into connected vehicles.
2.)Driver education is only for getting a driving license.
Most people think that driver education is only for the purpose of getting a driving license and that this is only required when people first learn to drive a vehicle, and in some cases, when a driver’s capabilities deteriorate – sometimes through age.
IMS believes that safety is a lifelong journey, and that our telematics devices save lives, limbs, property and money through continued education. For example, we tie our telematics devices to posted speed limits and have real time audio responses in vehicles, to indicate when a driver is speeding. This is both for safety purposes and to help a policy holder avoid speeding infractions. Further, our tips can help save money by showing how a policyholder can get more fuel economy from a vehicle by avoiding harsh acceleration and excessive idling.
3.) Demographics are the best indicators of driving behavior.
While data on age, sex, income, type of vehicle tell part of a picture, they don’t capture the attitudes and behavior of drivers. Just as there can be “old” young people and “young” old people there can be great young drivers and poor older drivers.
IMS believes that the best predictor of risk is a blend of demographic and psychographic data. While the article talks about the risks of young drivers, we believe this thinking needs evidence to support or refute the original hypothesis. In that sense actual behaviour is more telling than theoretical behaviour.
4.) The data belongs to the insurance company.
As the insurance company pays for the telematics program it therefore “owns” the policyholder data. While this may be true contractually keeping the data to the insurance company alone is not the best use of this resource.
IMS believes that the driver inherently owns the data. If the insurance company claims this then they are putting a further wedge with the policyholder. We believe that a better strategy is to share the data in a usable form with the policyholders. This will increase the “service level” of the insurance proposition and help increase consumer loyalty. Finally we believe that the funding for this sharing program can come from the reduction in advertising currently needed to retain customers. These funds are much better spend on a customer relationship management (CRM) program backed by telematics.
5.) Telematics is all about price.
In the USA, Progressive is controlling the dialogue around price, as this gives it an advantage. In short, the telematics device is required to establish price with the policy-holder. Most of the auto insurance companies that are getting into the business are following Progressive so that they are not left behind. In turn, auto insurance is becoming a “race to the bottom” which will only benefit the “price players”.
IMS believes that telematics is about building a relationship with one’s policyholder and changing the paradigm that the insurance company is a financial institution and its policyholders are suppliers of capital. Telematics can enrich this relationship by providing a valuable service to users through CRM.
As such, this represents true behaviour modification because consumers will start to rely on their auto insurance companies for service and advice.