SHIFT TO USAGE-BASED INSURANCE ACCELERATES
There is growing evidence that usage-based motor insurance is now on the brink of widespread industry-wide adoption in the UK and Europe, but are insurers really ready for the business impact? What lessons can be learnt by South African insurers who have not yet ridden this wave?
There are certainly compelling arguments to support the move. “An information-based business, centred on deep customer knowledge, offers a potential route away from commodity pricing and towards individualised premiums. In the process, risk is reduced and margins will improve,” says Rhys Collins, Head of African Operations for SSP.
Like most other technology advancements, telematics and related technologies are maturing quickly. The costs of implementing and operating the technology are also coming down, with a healthy market of service providers who are willing and able to help insurers get going. The SSP SoteriaDrive telematics solution for example is quickly implemented using a smartphone app.
SSP’s global office recently commissioned Incisive Media to carry out a study amongst 27 global insurers to explore Enriched or Blended Data in general insurance businesses.
The study looked at exactly what stage telematics had reached and found that despite the newness of the technology it is encouragingly starting to deliver on its promises of reliable, accurate data that can be used to design and offer usage-based insurance. In spite of these results and the fact that most of the companies who participated reported some degree of activity, SSP estimates that take up is still in its infancy.
Collins says the next phase will need to focus on the business processes, customer offers, and commercial benefits to be gained. Some of these developments may reduce costs through more-efficient and safer journeys for the drivers, while some developments may focus purely on the benefits to insurers.
It has been demonstrated in the UK that telematics improves driver behaviour and engages the customer. In addition, first mover advantage is evidenced, with early adopters attracting safer, better drivers who therefore enable Insurers to cherry pick profitable customer segments.
SSP’s Collins says for insurers, the key message is that the introduction of telematics is having a greater impact than expected on business processes and the business model itself. Typical issues they are encountering include having to cope with the sheer volume of data at the technical level; agreeing on the ownership and use of the data within the company; choosing the right telematics strategy from software selection to commercial ambition; and understanding the data in a way that contributes to the commercial success of the company.
“There is no doubt that telematics creates business challenges around managing large volumes of data and concerns around which model to adopt. But on the positive side it is clear that the new data offers a wide array of potential business benefits. Telematics trailblazers are beginning to see profitable opportunities, and the challenges lie, surprisingly, mainly in the non-technical areas,” concludes Collins.