Trading data may change the face of UBI

As usage based insurance (UBI) continues to take root in the automotive insurance market, the launch of a telematics data exchange by risk assessment and data analytics services company Verisk looks set to pave the way for a long-term shake up of the industry.  So, to what extent will the new exchange, and others like it, help UBI providers to gain access to large data sets and transform raw data into insights?  Will it help them to streamline claims and reduce costs?  What is the potential role of automakers in managing telematics data exchanges and what trends and developments can we expect over the next few years?

Trusted third party

For Roberto Polli, head of insurance telematics at Vodafone, one of the main advantages of telematics data exchanges, particularly in terms of their impact on the provision of UBI in the automotive industry, is the fact that they offer users the ability to “collect and normalise” large quantities of data, while, simultaneously, acting as a “trusted third party between the vehicle manufacturers, the users and the insurers”.

“This is potentially the biggest advantage of data exchanges.  Nevertheless, it is important to make sure that data normalisation doesn’t actually decrease data quality,” he says. Despite the clear advantages of large scale data access, Polli still warns of the danger that data exchanges could lead to the further “commoditisation” of motor insurance services and a continuation of what he perceives as the “current lack of value added service for the end users, beside the premium discount”.  He is also sceptical of claims that data exchanges will enable UBI providers to streamline claims, save development time and costs, and foster ever faster innovation.

“Normalising crash detection, and reports to streamline claims, will be hugely complicated and will require big and expensive changes in the automotive industry.  This normalisation may turn into lower quality compared to direct-to-insurer aftermarket or OEM propositions,” he says.

Moreover, although he believes that enhanced data exchange services will eventually enable UBI providers to mitigate losses proactively, probably through initial customer selection and qualified lead generation, he points out that all insurers “will try to access the same pool of customers” and wonders “what is going to happen to the rest of the driving population?”

Exploring the role of carmakers

Meanwhile, Roger Lanctot, associate director global automotive practice at Strategy Analytics, argues that the “bottom line issue” with data exchanges is whether or not they empower the customer and “who will own and manage the data and the customer relationship”. In this light, he strongly believes that automotive manufacturers “should be in the business of managing these relationships”.

“The Verisk exchange as currently conceived falls short of delivering on this promise but does represent a step in the right direction.  An auto maker managed exchange will enable a platform with a dozen or more insurance providers with links to integrate claims management in a manner that gives priority advantage to the car maker’s dealer network,” he says. “Carmakers will figure this process out and when they do it will fundamentally reshape the car insurance business.”

In contrast, Polli takes the view that carmakers should not adopt a management role in the nascent telematics data exchange space.  This is largely because he predicts that current and emerging regulatory and service requirements will create an “extremely challenging compatibility and service matrix” that he argues carmakers are “not currently equipped to face and satisfy”.  “Their position will not allow them to be considered as trusted third parties by the customers or the insurers.  Telematics data exchange should be managed by service companies that can guarantee neutrality from vehicle manufacturers and insurers,” he says.

Future trends and developments

Looking ahead, Polli also highlights a number of likely key trends and developments in the use of telematics data exchanges by UBI providers over the next few years.  To begin with, he flags up the probability that UBI providers are “most likely to use telematics data exchanges mainly for qualified lead generation” and argues that customer selection and acquisition costs “will benefit massively from the collected data”. “Nevertheless, most of the insurers believe their existing scoring and risk management algorithms to be their distinctive factors, which may reduce the role of telematics data exchanges to dumb pipes after customer acquisition is done,” he says.

“Data analytics is just the tip of the iceberg in a UBI programme.  Operational efficiency, customer engagement, new sales channels and value added services are fundamental elements to de-commoditise motor insurance and justify the business cases for UBI,” he adds.

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