Insurance telematics in Brazil

James

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23rd October 2012

The cost of insuring a car in Latin America and in Brazil in particular is dominated by a single metric: the odds of that car disappearing, which, in Latin America and Brazil, are alarmingly high.

By some estimates, thieves steal a vehicle every three minutes in Brazil’s urban centers. According to news reports from Brazil’s State Department of Public Safety, the National Traffic Department, and the DMV, every day in Rio de Janeiro around seven or eight vehicles out of every 100,000 are stolen. That’s 19 times the theft rate in New York City, which in 2011came in at 0.4 vehicles per 100,000 per day. Sao Paulo is a little better than Rio, with a mere four vehicle thefts per 100,000 per day.

The cost of insuring a car in Brazil is therefore astronomical, sometimes as high as 20 percent of the value of the car per year, meaning that a Brazilian consumerpays for a new car every five years in premiums alone.

“You look at the impact that has on car insurance and people’s ability to go buy cars, which then impacts car dealers, which then impacts banks…” says Roger Dewey, chief operating officer at the M2M enablement company Device Cloud Networks and a 15-year vet of the Latin American telematics space. “If you look at the complete economy around the purchase of the car, the impact of vehicle theft is profound.” (For more on security, see How telematics keeps cargo management on track and Telematics in Brazil: Ensuring security for cars and cargo.)

Beyond track-and-trace

The prevalence of theft may be a boon for insurance telematics. One of the most significant impediments for insurance telematics solutions in the U.S. and Europe has been justifying the cost of integrating a UBI device into a vehicle. Insurance providers like Progressive have tried to maneuver around this problem by doing temporary integrations; Snapshot, for example, only needs to be in the car for five months to give a ‘snapshot’ of behavior. (For more on insurance telematics, see Industry insight: Insurance telematics.)

But the impediment remains, except in a place like Brazil, where devices capable of UBI monitoring may already be embedded in vehicles thanks to the risk of theft.

Indeed, not only are track-and-trace solutions widely distributed in Brazil, they have a technical complexity that exceeds what many similar solutions offer in more developed markets. In addition to standard black boxes and GPS tracking, leading providers have integrated anti-jamming solutions and intelligence into the hardware “aimed at confusing thieves and making their action less efficient due to the use of surprise elements,” says Paulo Campos, insurance business manager at Autotrac, a Brazilian telecommunications provider for the fleet and consumer auto space. Most companies also run round-the-clock hotlines.

This combination of service and technical innovation has proven effective. When customers reach the hotline less than one hour after a theft, chances for recovery are close to 98 percent. The success rate falls dramatically after one hour has elapsed, but the government has been sufficiently impressed by the efficacy of track-and-trace solutions to pass official government legislation—Contran 245—requiring OEMs to build a tracking module into every new car and truck released in Brazil starting in 2013.

The GPRS module Contran 245 mandates will come loaded with a SIM card that supports up to 30 wireless carriers and an immobilizer that can disable a car within seconds after it is reported lost or stolen. “If you have a tracking device in the vehicle, you may as well run as many value-added services over that connectivity that you already have in place,” says Dewey. (For more on Contran 245, see Telematics in Brazil and LATAM: Going beyond GPS and Telematics in Brazil: The law of the market.)

The groundwork for UBI

With a platform embedded, insurance providers will have an easier time layering in UBI services. Insurers in Brazil have already mobilized behind track-and-trace solutions. Most—including Pamcary, the largest insurer for risk-management in Brazil—currently offer reduced premiums if the car has a tracking device installed. “In situations where the risk is too high, this is mandatory,” says Campos.

Additionally, insurers have started using historic data obtained with the help of tracking modules to confirm thefts, thereby minimizing losses caused by fraud. Campos suggests that this sort of data mining prepares insurers to successfully integrate behavioral analysis in the future. In fact, he says some are already using vehicle maintenance data to identify the behavior of drivers, especially on the fleet front, thereby allowing for awareness actions and training.

“It is clear that a poor driver leaves traces, and this information can help companies act as needed,” says Campos.

No company has publicly rolled out a ‘pay as you drive’ or ‘pay per use’solution to the Brazilian market. Dewey says he suspects pilots or product experimentation may be under way, “but no one is advertising a program yet.”

Challenges to UBI

One of the most important questions for insurers and telematics service providers in Brazil is whether the basic module that will now come embedded in every new vehicle is advanced enough to perform the data collection insurers need for a successful UBI program.

The current module is a basic platform that can be supported by 2G technology—very low cost delivering very low bandwidth data. “It’s almost text messaging level,” says Dewey.

If companies want to sell advanced services, they may need to increase the throughput to 3G or 4G data. Those devices cost more and the infrastructure to maintain their connectivity is inconsistent throughout Latin America.

“In Europe, eCall is now lagging behind the market,” says Dewey. “People want these services; young people expect connectivity … In Brazil, it’s the other way around. There hasn’t been pull for advanced services, rather a push out of a government decree. So the question remains, can we up-sell the devices?” (For more on value-added services, see Telematics in Latin America: Getting ready for infotainment.)

Generating consumer demand

One of the primary reasons the track-and-trace mandate got held up for so long in Brazil was because of public push back. The mandate only passed when the government added a provision that citizens would be able to turn the device off. Thus, convincing customers to allow insurers to trace their behavior behind the wheel may prove a tough sell.

“All the suppliers are saying, ‘This is great. We have an instant market of 12 million vehicles a year,’” says Dewey. That may be true, he adds, “but if the only selling point is that the device is there because it has to be, people will pay the bare minimum.”

A third consideration for global companies moving into the Brazilian market is some of the local challenges. Taxes, for instance, can be alarmingly high—like a 100 percent duty on imported telematics devices.

To avoid such steep charges, companies may elect to contract manufacturing in Brazil itself. But unlike in China, where manufacturing is cheep and companies can benefit from regulation clauses that require decreases in cost year over year, in Brazil the cost of manufacturing is more expensive, and the government requires a four percent increase in salaries of laborers every year.

“Companies assume Brazil will be low-cost manufacturing like China,” says Dewey. “That is not the case.

The government also charges additional taxes whenever a company wants to move goods from state to state within Brazil and further value-added taxes at different stages of refinement as a company moves through the product life cycle.

“All this needs to be understood, really understood,” says Dewey. “You need to understand because you’ll have thin margins to begin with, and if you don’t understand it, it will kill your initiative.”

None of these considerations preclude success in the Brazilian market, Dewey is quick to add; they simply advertise the need to exercise caution and to form well-informed strategies.

“It will come,” Dewey concludes of the insurance telematics opportunity. “And it probably will come at an accelerated pace. In Brazil, it’s just a matter of when.”

Andrew Tolve is a regular contributor to TU.

For more on the Brazilian and LATAM telematics markets, see Telematics opportunities in Brazil and LATAM, part I and Telematics opportunities in Brazil and LATAM, part II.

For more on insurance telematics, see Industry insight: Insurance telematics.

For more on telematics in emerging markets, see Industry insight: Telematics and emerging markets.

For all the latest telematics trends, check out Telematics Munich 2012 on October 29-30, Telematics for Fleet Management USA 2012 in November in Atlanta and Content and Apps for Automotive USA 2012 on Dec. 4-5 in San Diego.

Coming up in 2013: V2X for Auto Safety and Mobility Europe 2013 on February 19-20 in Frankfurt, Telematics for Fleet Management Europe 2013 on March 19-20 in Amsterdam, Insurance Telematics Europe 2013 on May 8-9 in London and Telematics India and South Asia 2013 on June 5-7 in India.

For exclusive telematics business analysis and insight, check out TU’s reports: In-Vehicle Smartphone Integration Report, Human Machine Interface Technologies and Smart Vehicle Technology: The Future of Insurance Telematics.