A.T. Kearney: “Telematics is becoming a key competitive differentiator”

A.T. Kearney: “Telematics is becoming a key competitive differentiator”

What does your company do?

A.T. Kearney is a global management consulting firm, covering 37 countries with almost 3,000 professionals from 57 offices. We advise international business partners on any business-related topics, from growth strategies to operational efficiencies.

What is your role in the insurance telematics market?

Since the beginning, we have been at the forefront of the telematics explosion, supporting all the relevant players of this emerging value chain. We helped lead insurance telematics players in defining their industrial plan or international growth approach; among others, we recently assisted a top European player in the ‘road show’ for its private placement with private equity firms. We advised public regulatory authorities on expected evolution of telematics markets and players. We assisted insurance companies in aligning their operating model to exploit business opportunities from the new technologies. We are supporting leading car rental players to enhance their fleet management control, optimizing cost structures.

How important is the role of telematics throughout the insurance market?

Telematics is becoming a key competitive differentiator for more aggressive insurance companies, based on the significant tariff discounts of telematics policies. In addition, telematics could increase the efficiency of insurance companies’ internal processes, from balancing of customer portfolio to fraud prevention. Strict monitoring of accidents could enable channeling to preferred repair shops benefitting active management of the passive cycle. Lastly, telematics is a powerful attraction for the best, more virtuous customer base in the market. As a consequence, in the medium term no insurance company could avoid offering telematics policies if it doesn’t want to be left with just ‘bad’ customers in its portfolio.

What is needed for the large-scale success of PAYD/usage-based insurance?

Insurance companies are now starting to fully understand the implications of telematics for their business. Once the benefits to insurers’ operations become clear to the entire market, we will witness a competitive rush to telematics policies in general and to usage-based insurance in particular. The biggest and smartest insurance companies are already very active in this field, even if the ‘old’ actuarial mindset is still difficult to overcome. Another important step will be the adoption of an international technology and communication standard, which could allow the portability of the telematics device from one insurer to the other. Lastly, full strategic ‘onboarding’ of auto OEMs on telematics could lead to the factory installation of telematics devices on cars, thus easing up the start of service through only a SW update.

Which trends will impact the industry the most in the coming years and why?

One of the most interesting aspects of telematics is that it allows a customer clusterization that moves away from usual demographic parameters (e.g., gender, age) and builds on driving characteristics specific to the single client (e.g., day and time of driving, type of road used, average and peak speed, etc.). We thus expect a proliferation of insurance policies and tariffs tailored to the specific driving patterns of the customers. This will benefit both the customers for the achieved discounts and the companies for several aspects, for example, for the enhanced risk measurement.

How do you view the role of auto OEMs in insurance telematics?

Auto OEMs can take great advantage from telematics, offering tailored services to their customers (e.g., maintenance alerts, traffic directions, etc.) that could guarantee a natural customer lock-in and potential additional revenues. OEMs could thus be active even beyond car sales, along the entire lifecycle of the product. But at the same time, OEMs are most at danger; other players—such as telecom operators, IT companies, and even infrastructure operators—could use telematics to tap into auto OEMs most profitable markets, such as spare parts and maintenance.

Where do you see the insurance telematics industry heading in the next five years?

The competitive arena of insurance telematics is currently particularly fluid and the battle is still open. Some players from different industries are starting to use telematics to move along the value chain away from their current positioning. They can leverage this competitive advantage to offer new services in continuous or different markets and cover bigger areas of the value chain. Only players that are able to quickly identify new telematics business models and their positioning within them will succeed in the new competitive arena.

For all the latest on insurance telematics, join the industry’s key players at Insurance Telematics Europe 2011 on May 4 and 5 in London.

Leave a comment

Your email address will not be published. Required fields are marked *