There is an emerging trend in the car insurance industry. One that is making me feel very excited about the future of motor insurance and one that is catching like wild fire since the ECJ ruling on gender-based pricing. Over the past couple of years, I have been following a technology referred to as 'Telematics' with interest. It is the technology behind all of the 'pay as you drive' insurance products cropping up in the market targeting young drivers and those of us who travel low annual mileage. The "Black box" is here and I had the opportunity to share my thoughts with one of the insurance industry's leading publications,
Don't think this excludes the car rental industry. It already applies in the management of small and large fleets of vehicles and their drivers, but telematics is destined to play a bigger role in the car hire products we access.
My Question and Answer session, "Talking Telematics" with Saxon East, Assistant Editor, News for
Insurance Timeswas published on 25th March 2011. It is currently under subscription on their website, so best to read it here...
Ins Times: Hi Ernie, this week Co-Op became the latest insurers to announce its was launching a telematics device for young drivers. What are some of the advantages of telematics for insurers?
Over the past two years, we have seen the benefits of insurance telematics concentrate in the following three key areas:
1.Self Selection- improved underwriting results, claims fraud less likely, pre-installation gives the insurer the opportunity to inspect vehicle and other credentials, good drivers want to prove themselves so they seek this type of insurance.
2.Validation- never has it been so easy for insurers to validate what they are insuring, both vehicle and driver. Innovative products currently are validating the vehicle, the proposer, the vehicle's log book, drivers licence, convictions, proof of No Claims Discount, additional drivers and photo of vehicle
3.Claims Effectiveness- informing claims handlers details of the incident to validate anecdotal evidence, help manage a claim, help recover stolen vehicles, and use of telematics data as evidence to establish liability and or challenge severity.
Slowly but surely, the adoption of online dashboards provided to policyholders will strengthen the relationship between insurer and customer as they promote the good driving behaviour. The use oftelematics enables insurers to more effectively incentivise good driving practices and talk with their customer more often than the 3 potential times in any given year (purchase, claim and renewal).
During 2006, the time Norwich Union (now AVIVA) performed this pilot,accident claims among younger drivers alone dropped by about 20 percent.That is a staggering statistic and it represents a huge benefit in terms of road safety.
Ins Times: What are some of the problems or hurdles insurers face in bringing in the telematics technology?
Implementing a telematics Pay-As-You-Go car insurance product takes a large insurer anywhere between 18 months to 3 years. By nature, insurance companies are complex in structure with older IT systems. Slow decision making does not help either. Sometimes, that poses a real problem when dealing with the telematics providers as the amount of processes being introduced have to be monitored. It is the only way insurers will extract real value from the data coming through.
Also, some of the problems stem from not having enough claims and pricing experience in this new business model. Trying to establish the appropriate premium for a risk is a challenge early on.
Three years ago, you could have blamed high installation costs of the so called "black-boxes", but this cost is quickly dropping and there are new companies providing a one-stop-shop service.
Take for example Wunelli Ltd. It has built a proven supply chain for Insurers to enable them to launch a telematics based insurance using tried and tested hardware, data collection and billing / administration processes. This means that Insurers can move quickly to market and can provide a more tailored insurance product to the policyholder. Wunelli are behind the recent Co-op launch and finding real traction with insurers.
Ins Times: As an entrepreneur who works in motor insurance across the continent, how widespread is telematics in Europe at the moment? Is the UK slightly behind on this technology?
Europe is an interesting development because there are several well known telematics based products operating successfully online in different countries. The technology within the "black-box" is closely matched, but not all products are using all their functionality.
In Belgium there is Viviums's (vivium.be) S2 = "Safe & Save" programme. The product is based on the principles of security and safety. It is positioned to the fathers of young drivers, since the majority of time, they are making the insurance purchasing decision.
In France you have amaguiz.com ( a product underwritten by Groupama). It is purely based on mileage. It counts the kilometres you drive and sends them to a service provider who then invoices you the usage. It does not use GPS, and it seems to be positioned to the greater public, not just young drivers.
In Austria/Hungary you have Uniqa.at selling "SAFELINE", which is a three year contract with access to discounted comprehensive auto rates for young drivers.
In Spain you have "yCar" (ycar.es), a programme underwritten by Mapfre for young drivers. It features a telematics tracker for theft purposes, but that is it. The rest is backed up by traditional rating model.
So in summary, there are good examples of telematics supported products, but clearly the UK is leading the way in respect of car insurance products. The value chain is also well positioned to help the UK make PAYG a viable option for UK policyholders.
Ins Times: Is telematics something that would be considered for usage in rental hire cars?
Telematics is widely used in the car rental industry to assist fleet managers optimise the usage of the vehicles and the drivers of such. Where telematics has been introduced, it has quickly improved fuel savings, productivity has increase and there are reduced operating costs. Lately, large fleet operators are touting it improves their carbon footprint (reduces it) due to gains in efficiency.
In the consumer car rental market, the majority of rental cars are fitted with a tracker device so they can activate it if a car gets stolen. If asked, car rental firms usually let you know up front if a device is installed and what they use the device for. I have not seen or heard of any car rental firms apply any penalties if a customer has breached any of the car rental agreement limits, such as area of use or miles driven.
As providers of car hire excess insurance, we are constantly monitoring what the industry is doing. We are trying very hard to educate customers about all the pitfalls when dealing with car rental companies, but we are also trying to show them how the car rental industry is evolving. We are an example of this as a supplier of car hire insurance to several partners.
Personally, I would like to see the motor market make an underwriting profit as a sector. It will have a halo (excuse the pun!) effect on other areas in the personal lines market and potentially begin to clean up the claims farming which has plagued the industry for many years. As an industry, the motor market needs to get the issue of personal injury claims under control, which could be helped by new legislation aimed at reducing the burden of these claims.