The Biggest Threat to the Auto Insurance Market? Failure to Continuously Innovate.

Waterloo, ON (Feb. 5, 2013) – In recent years the auto insurance industry has made some great gains in innovation, especially with the use of telematics devices in vehicles to introduce usage-based insurance (UBI) programs. In fact, a lot of insurance insiders have banked on the telematics movement to be the innovation to change the industry without needing any further developments.

But those responsible for some of the innovations see the failure to continuously innovate as a major threat to success. MyConnectedCar (MCC) recently sat down with Blair Currie, VP Marketing at IMS, to discuss current game-changing innovations and what kind of further developments IMS hopes to see in the future.

Blair Currie, VP Marketing, IMS

MyConnectedCar (MCC): Telematics and usage-based insurance programs are really starting to gain speed in the auto insurance industry. Would you say they are the last innovations we’ll see for a while in this industry?

Blair Currie (BC): The industry is definitely starting to realize that telematics enrich their offerings, and can help build a new, mutually beneficial relationship with their clients. But we are still in the early days, and Telematics have reached under 5% of all passenger vehicles in North America.

That said, telematics solutions need to be differentiated since many players are simply trying to get into the game by copying the market leaders. This will benefit the market leaders but probably not the later entrants. There’s a need for innovation within the Telematics arena itself.

MCC: Such as?

BC: The first place to look at is the business model. Up until now the main business model for Insurance Telematics has been to offer policyholders a discount for joining a program. This is a self selecting process and has attracted some good drivers to the franchises of the early players in insurance Telematics. The problem with this business model is that it is becoming a “race to the bottom” and will only benefit the “price players” including Progressive and Geiko. The others that follow will end up in a “Red Ocean” with low profitability.

The same Telematics device than is used to determine policy pricing can also be used to build relationships with policyholders through CRM, or Customer relationship management. If the insurance carrier starts to share the data with its drivers in a “usable form” such as driving scores, then it can provide value and add a service component to the business model. It might not have to talk about price and it should prove to be a “Blue Ocean” for those who adopt it.

Alternatively most of the current Telematics programs are about giving drivers a discount. Given that this reduces the margin of the most “valuable” policyholders, shouldn’t poor drivers be charged more based on their performance. To the best of our knowledge there is only one program in the US that also provides for insurance surcharges for poor driving behavior. Others in the United States and in Canada should consider this.

MCC: Business models seem like big things to change. Are there smaller examples?

BC: Of course. Data is another area that needs innovation or even disruption. On the most basic level not all data is equal and data quality will become a major differentiator for Telematics programs in the near future. To start there are limitations to most forms of driving data. If we take GPS data as an example we see quality issues with location data in urban centers. These quality issues stem from a concept that we refer to as “GPS drift” where the path of a vehicle seems to veer off major roads – but it’s really due to GPS signals bouncing off tall buildings.

Our company, IMS, has found the best way to deal with GPS drift and to enhance data quality is to fuse the GPS data with both data from the accelerometer and from basic road data. Through “sensor fusion” or “data fusion” of the GPS data with the accelerometer data we can get a better picture.

Also, there will be innovation in the area of linking Telematics data with other sources of data such as weather, traffic and road conditions. The reason for this is that context – in terms of driving conditions – play an important part in understanding data and providing insurance carriers with insights and intelligence about their drivers.

MCC: Getting back to our original questions about innovation … Do you think the auto insurance industry must be willing to change their own norms, so to speak?

BC: Yes and no. Yes because there will always be those who are willing to take a chance, and no because risk and change can be almost anathema to what insurance is all about.

Some insurance carriers think that all they have to do is to start an insurance Telematics program based on what has worked for others, and that is the extent of their innovation. That probably won’t work because we are reaching a new phase of insurance Telematics – a phase we call UBI 2.0.

Insurance Telematics is a moving target and the trick is how to leapfrog ahead of the current players.

MCC: Definitely food for thought. Thanks for your time, Blair.

Further information

For more information on UBI, IMS is offering a deeper dive in two forms:

  • IMS UBI Webcast – which is applicable to all global insurers and available for viewing by clicking here.
  • IMS UBI Boot Camp – a boot camp designed specifically for Canadian insurers. You can sign up by registering here.

About IMS

Intelligent Mechatronic Systems Inc., based in Waterloo, Canada, is a global leader in Telematics and Infotainment, including the convergence of both technologies in delivering the ultimate Connected Car experience. For more information, please visit

Source: Intelligent Mechatronic Systems Inc.