How insurance companies can remain competitive with telematics

Waterloo, ON (Mar. 6, 2013) – A recent study found that seven out of ten US auto insurance companies are planning to introduce usage-based insurance (UBI) programs in the near future. And a growing number are also lining up in Canada. This increasing demand has led automotive insurance experts to speculate about the impact telematics will have on the Industry.

One of those specialists is Blair Currie, Vice President of Marketing at Intelligent Mechatronic Systems (IMS) of Waterloo, Ontario, Canada. In this installment of our interview with Blair, we discuss how insurance companies should be approaching the idea of implementing UBI programs.

Blair Currie, VP Marketing, IMS

MyConnectedCar (MCC): Blair, what’s your general impression of the way telematics will impact the automotive insurance industry?

Blair Currie (BC): Telematics will be very disruptive force and it can be used to disrupt this insurance market in favor of those who embrace it.

Auto insurance has been largely sheltered from the impact of technology to date. It has relied on proxies for driving behavior but the business has become conventional. Along comes insurance telematics and the whole model is now getting called into question. CEO’s are pushing their teams to get on top of this before their competitors do. This is driving much of the interest in telematics today.

Telematics disrupts the conventions of the market by exposing real time behavior vs. driving proxies to give a real time view of driving risks. It can also be used to develop new business models such as payment as you go – providing insurance for the miles you drive only, or the days of the year you drive, or the actual location where you park your vehicles and for how long.

MCC: Isn’t automotive only about establishing the price of insurance?

BC: I think that the market leaders in Usage based insurance have shown that telematics can be used to establish the price of an insurance premium. Progressive also controls the dialogue around UBI because it is the dominant advertising. As a result, the relationship between UBI and price is broadly understood.

But UBI is more than pricing and more than a snapshot. The same telematics device that can be used to determine the price of a premium can be used to generate driving data that can establish relationships with customers.

Once insurance companies get used to the idea that they must share data with drivers – because driving data will almost certainly be deemed the property of drivers – then other business models can develop. For example by sharing driving data in the forms of scores and coaching tips, a smart insurance company can flip the whole UBI model in its favor away from price and towards service.

MCC: What do you mean by service?

The current business models of auto insurance are based on the insurance company being a financial institution and policy holders being suppliers of capital for investment and to pay claims. The current model has very little to do with service. And the relationships that drivers have clearly demonstrate the problems with this.

Most policyholders are not happy with their insurance company. Upwards of 70% of drivers and over 90% of young drivers feel they are “above average” in terms of driving skills. These people feel they are paying too much for their insurance. Further if they face a claim they feel that insurance companies don’t trust them. This leaves them dissatisfied with their carriers, and on the lookout for cheaper premiums.

Sharing driving data can help change the relationship to a service model where policyholders can view real time results of their driving skills versus a peer group. They can also use this data to improve their skills and protect their lives, limbs and property.

MCC: So you think that this is all it will take to change the relationship?

BC: I think that it can change the business model but at the same time, I wouldn’t underestimate resistance to change for many insurance carriers. What has made insurance companies successful in the past has been to rely on proxy data. And that still represents the mainstay of their business.

As telematics is disruptive and can threaten the existing business, this can also cause conflict within insurance carriers – for the telematics team competes for the same resources as the “traditional insurance” team, which is bigger at this time.

That said change is coming, and it is important to embrace it or get left behind. General Eric Shinseki, former Chief of Staff of the United States Army said this eloquently “If you don’t like change you’ll like irrelevance even less”.

Our company is in the business of helping our insurance partners make the most of this telematics-driven change.

MCC: 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 www.intellimec.com.

Source: Intelligent Mechatronic Systems Inc.