The business case for insurance telematics is there in the making
Consumer acceptance of insurance telematics is at a crossroads. A lot will change over the next five years. Within the next two to three years, public awareness of how telematics can enable more affordable insurance policies will increase. Mass adoption of usage-based insurance (UBI) will occur as costs come down, vehicle technology advances, and large-scale telematics projects like eCall are progressively implemented. All these factors together will enable proactive insurers to provide cost-effective, technology-driven solutions.
First movers will be at an advantage, since they will be able to offer new and more personalized insurance products at more competitive rates. Drivers will also be offered financial incentives to take up UBI in the form of reduced premiums. Telematics enables insurers to differentiate their offerings while also creating better book value and improving customer retention. The intelligence derived from robust telematics data positively impacts financial performance and, importantly, gets the insurer much closer to the customer.
The backdrop to all this is the pressure on insurers in a rapidly changing marketplace. Costs are increasing all the time—around 40% year on year, according to the latest figures—while the EU gender ruling requires a careful rethinking of risk analysis and could change underwriting beyond recognition. Similar judgments could follow. So the business case for insurance telematics is there in the making. (For more on the EU gender ruling, see ‘Insurance telematics: What’s gender got to do with it?’.)
Insurance companies are developing that business case. They are finding unique offerings, differentiating from the competition, and gaining more acceptance from consumers. They are able to communicate value-added, customer-centric services (like breakdown, ‘find my car’, and low battery alerts) to consumers. Along with competitive and more personalized premiums, this is crucial for end-user uptake. Increasing numbers of drivers are looking for cost-effective insurance premiums and to be rewarded for their good driving.
The adoption of telematics can also modernize the claim management process; key information like ‘First Notice of Loss’ (FNOL) and accident reconstruction can be accessed very quickly. The big issue is the cost-effective management and packaging of data. The industry is accessing the right cost models and beginning to understand the benefits of telematics. The next steps are to develop innovative pricing models and to turn the rhetoric into meaningful pilots and live offerings.
For all the latest on insurance telematics, join the sector’s other key players at Insurance Telematics Europe 2011 on May 4-5 in London.
