Viewpoint: Insurance telematics and data interpretation

Viewpoint: Insurance telematics and data interpretation

Insurance Telematics can now be associated with the phrase ‘There’s an app for that’. In fact, there’s also a black box and a dongle, for that matter. But should we care about the technology that drives insurance telematics?

As telematics become more and more ubiquitous, organisations are quick to jump on the bandwagon of the latest ‘me too’ craze. Black boxes, OBD2 dongles and telematics apps are taking centre stage when it comes to providing tailored motor insurance premiums. But the harsh reality is that insurers are in danger of blindly adopting the latest—or easiest to implement—technology and consequently missing the fundamental business goals for the use of telematics.

It’s the data, stupid!

Telematics is becoming viewed as the panacea of the insurance industry. Faced with legislative challenges, tight margins and spiralling combined ratios, insurers are quick to accept telematics as the saviour. Mid-level executives can be confronted with a whole host of technology that increases the possibility of falling into an uninformed trap far too easily. It is essential to pause, take a step back and ascertain the fundamental business reasons for adopting a telematics-based approach.

It isn’t the telematics technology that provides the insightful information necessary for tailored premiums. Whilst the technology is the enabler, it is the capability to analyse the data on a granular level and provide objective and accurate measurements of how a driver performs where the true value lies.

Motor insurance policy holders are accustomed to premiums that have been defined by predetermined proxies, whether that be age, gender, location or marital status. Telematics simply allows those proxies to be at worst augmented and at best radically changed by a real understanding of exactly what level of risk a driver presents.

For example, if an insurer truly understands how each policyholder drives, is it really important to know the gender of that driver? Whilst the traditional ‘proxy’ approach has sufficed to date, technological advances and the ability to interpret driver behaviour recorded on a second-by-second basis mean that insurers are now in a position to provide personalised insurance premiums. The data available through the use of telematics enables an insurer to provide policies based on how an individual actually drives, rather than an average view taken from a predetermined group of dated proxies.

Benefits for everyone

It is naive to assume that telematics is the latest fad in an ever-changing industry headed up by insurers that are out to make a profit from a state initiative. The reality is that the use of telematics data can benefit everyone. For example, commercial insurers want to understand behavioural risk to tackle fraudulent claims which will result in cheaper premiums; the UK government wants to reduce the cost of road collisions, having spent an estimated £15.6 billion last year alone on prevention measures; charities and governing bodies such as RoSPA want to improve safety and educate drivers to reduce the personal trauma associated with road accidents.

Let’s face it, when it comes to insurance policies, competitive pricing will always be the dominating factor. Government initiatives such as graduated licenses, which demand the passage of elapsed time rather than a demonstration of empirical skill improvement, provide a glimpse of the changing face of the insurance industry. However, a legislative move like this would only postpone newly qualified drivers from gaining valuable driving experience in more challenging driving conditions.

Such limitations simply become another proxy from which insurance brokers can price premiums. Telematics has a part to play here. It is possible to assess exactly how a new driver’s skill improves over the period post qualification, and graduated licences could easily be dependent upon such skill improvement. The whole arena of insurance telematics is based upon the understanding of behaviour. This understanding can provide added value to insurers, the state and associated charities. Whilst the technology enables such a change in the industry, the true value lies in the data set and the interpretation of said data.

Linden Holliday is CEO of insurance telematics specialists MyDrive Solutions.

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

For all the latest telematics trends, visit Content and Apps for Automotive USA 2012 on December 4-5 in San Diego.

Coming up in 2013: Consumer Telematics Show 2013 on January 7 in Las Vegas, 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 on In-Vehicle Smartphone Integration Report, Human Machine Interface Technologies and Smart Vehicle Technology: The Future of Insurance Telematics.


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