By Rhys Collins, Head of African Operation for SSP
While telematics is not new to the motor sector it has never been more relevant. The introduction of the gender directive last December and the cost of claims in the sector have brought the technology – pioneered by US firm Progressive in 1999 – firmly back into the spotlight.
However, the increased interest in telematics has focused largely on products and how much they could potentially save policyholders, neglecting the processes involved in bringing a successful proposition to market.
According to estimates, telematics based solutions have the potential to gain up to 19 million policies in the UK and 89 million worldwide. However, leading global technology provider SSP estimates suggest that there are around 300,000 active telematics based policies in the UK alone. The potential for growth is clear but insurers have to have the right offering before rushing to market.
With pricing, legacy technology and cost issues to address before developing a product for consumers, a viable solution could be forming a partnership with a specialist service provider to dip a toe in the water.
As a part of the working relationship, the specialist can handle the data, while the insurer can experiment with the finer points of the product and develop its own skills in the telematics arena. The partnerships can start small and grow, but the insurer will still have to grapple with data security and privacy, standardisation and automation, real-time processing and scalability.
While learning about telematics it is crucial that insurers have the right staff in-house to manage their propositions. Research from the McKinsey Global Institute reveals that one of the biggest constraints organisations will have to deal with in the next five years is a shortage of people with the skills necessary to take advantage of the insights that large data sets generate. By learning from specialists, insurers can gradually build their internal resources to run the proposition in a more hands on way.
Testing this growing market is important but effectively managing the vast quantity of data that is generated by telematics is the next logical step. The ability to process and analyse data allows insurers to turn information to their advantage in both pricing and the distribution of products.
According to Gartner, insurers will need to have core systems that “support usage-based pricing, and manage or mine the amount of incoming data, especially around billing and pricing calculation, the calculation of recurring premiums when monthly costs are less predictable, and the implications on financial forecasting”.
In addition, at present the set of parameters that are used by most telematics data service providers – fed back in the form of a driving score – are relatively narrow. However, as the technology develops this is likely to grow. Insurers will have to be sure they are equipped to deal with the technological challenges that will come with these changes.
To achieve this, insurers will require a method for connecting with third-party providers and other partners. The telematics industry already uses the Open Service Gateway but insurers need to have an infrastructure in place to communicate with the portal. Without this, data exchange is an unenviable task.
Besides careful planning, staffing and the right approach to technology, offering the right customer service for motorists using telematics technology is vital. The vast amounts of data collected by the insurance industry will have to be made available to policyholders keen to view their data and understand how their approach to driving affects their premiums. Providing this data to customers, especially if it is presented in a way that suits them, can help retain business and attract new customers as well as improving driving behaviour and ultimately claims frequency. For today’s tech savvy consumers having access to a visual dashboard via a number of devices such as PCs, laptops, tablets and smartphones will be expected as standard.
Indeed, interacting with consumers in this way could prove revolutionary for an industry that traditionally only interacts with customers once a year – at renewal stage. Existing telematics providers are finding that policyholders visit their personalised driver dashboards on average twice a week – a golden opportunity to make a good impression and strengthen their relationship.
The granularity of the data will also be important. A dashboard displaying daily driving summaries including information on speed, braking, acceleration and cornering, and on new driving parameters as these come to light, is a must.
Meanwhile, incentives for customers who improve their driving could form part of these data dashboards. Impact analyses on premiums based on certain driving behaviours could help policyholders bring down costs, and extra services – such as vehicle locators, real-time vehicle diagnostics, and accident assistance – could sweeten the deal further.
The move towards putting the policyholder at the centre of the telematics revolution should also impact the way premiums are paid. Itemised billing could be the way forward for both good and bad driving behaviour – and their impact on what is to be paid for the period – clearly outlined in each statement. The old model of annual invoices for motor insurance premiums will become obsolete for telematics policies with insurers having to move to either quarterly, monthly or even weekly statements.
The claims arena, like in standard motor cover, will also be a key battleground in customer retention. According to Mauro Cantoni, Head of International Sales at Octo Telematics, the use of telematics is already having a positive impact on claims, with some insurers reporting a 20% reduction in claims frequency and a 30% drop in overall claims costs. In addition, the time taken to settle claims has been cut in half, while some providers have been able to improve their claims ratio by 12% over two years.
While this can be partly attributed to self-selection, as the more careful drivers gravitate towards telematics, its ability to provide crash data is crucial information for the first notification of loss process, allowing insurers to get control of the claims process early on, making significant savings on claims costs.
Perhaps, most interestingly, fraudulent whiplash claims could be greatly reduced with the use of telematics. With around 20pc of every motor insurance premium spent on whiplash and the incidence of whiplash also increasing, about 50% of a driver’s policy costs are used to pay for whiplash claims, fraudulent claims, the cost of legal fees and tax. The use of a G-force indicator as part of a telematics solution can highlight whether a claim for whiplash is valid and help prevent fraud.
Telematics is currently one of the main talking points in the industry globally but entering into this area of the market is not without its pitfalls and requires careful consideration. Taking the opportunity to learn from specialists, understanding data and how it can be used and servicing customers in the way they want could make a move a manageable and profitable experience.
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Prepared on behalf of SSP by Cathy Findley Public Relations