Siegfried Mortkowitz explores how telematics can form an important element of effective risk management for fleets
While most insiders agree that telematics is the way to go for usage-based fleet insurance, the day when wireless electronic devices are standard elements of fleet risk management is still a few years away.
Jon Verhaeghe, insurance telematics manager at Teletrac, says legal issues related to intellectual property protection as well as the absence of a successful market leader are among the factors inhibiting the growth of telematics in the fleet insurance sector in the United States. “But it’s so compelling, it makes too much sense for it not to happen,” he says. “Telematics can be a very important element of effective risk management. It’s a win-win solution for both parties.”
For the insurer, it represents a more effective way to price and segment the client by working with driver-behavior data that was not available before; for the fleets, it offers the means to reduce fuel cost, identify good and bad drivers and establish more effective driver safety programs. “If you have a tool like our Fleet Director and have a 20 to 30 percent reduction in loss ratio, that’s a game changer,” Verhaeghe says. (For more on driver behavior, see Benchmarking with fleet telematics and Managing driver behavior with fleet telematics.)
Coaching drivers, lowering risk
Part of the service is dedicated real estate inside the program that provides the insurer “a platform to keep his brand in front of a customer all the time,” he says. This is a radical improvement over the traditional, more distant relationship between insurer and insured where a decision is taken once a year and communication between the two parties is limited afterwards.
It also enables the insurer to provide customized information to its fleet customers. “They can provide information based on how that fleet is driving, and then push it out from there,” Verhaeghe says. This information includes such aspects of driver behavior as acceleration and braking patterns and adhering to speed limits as well as data on where the vehicle was driven and on what kind of road.
“The device can then score weaknesses and even replay, on a map, traffic incidents and collisions,” Verhaeghe says. “They can then coach to the particular driver problem areas, monitor progress and ultimately lower risk.”
Using these data, the insurer can deploy loss prevention teams to customers and use telematics to create more efficient safety programs for the fleet and its drivers, leading to a safer fleet and savings on premiums for customers and to fewer claims for insurers. In addition, the insurer can direct the customer to the right telematics on-board device for his fleet’s particular needs.
“Currently, there are millions of fleet vehicles already deployed with telematics that in most cases are tailored to meet their operational needs,” Verhaeghe says. (For more on insurance, see Industry insight: Insurance telematics.)
Four risk factors
Still, the United States lags Europe in using telematics to optimize fleet insurance, but it is only a matter of time before it catches up. “Right now, the market is soft with low competitive prices, which is not a strong environment for the introduction of telematics programs that rely on discounts or added costs,” Verhaeghe says. “We’ve got a ways to go, but all the building blocks are in place.” (For more on fleet growth markets, see Fleet telematics: Where the growth is, part I and Fleet telematics: Where the growth is, part II.)
Andrew Price, practice leader-Europe, motor fleets, for Zurich Insurance, agrees that telematics can be an important element of effective fleet risk management, but says that it must be part of a comprehensive approach that includes traditional data. “Telematics enhances the other risk management techniques,” he says. “There is no single solution to reducing a fleet’s risk.”
Price sees four important factors in fleet risk management: organizational risks, which are associated with everyday operational practices; driving risks, which have led to collisions and other incidents; theoretical risks, which project into the future the driver’s chances of an incident based on his profile and the vehicle he is driving; and dynamic risk, how the vehicle is being driven in real time.
“By combining all these data together, you get a holistic approach to risk management,” Price says. “Telemetry data can give tremendous insight, especially as it relates to the fourth factor, dynamic risk assessment.” It can also give early insight into the effectiveness of the driver-safety program that is in place.
“We encourage our customers to combine telemetry data with collision data, parking violations and other, similar information to identify patterns,” Price says. Such analysis can identify, for example, certain depots that have more accidents than others, perhaps because it employs different managerial policies.
Risk management toolbox
Price says that while “there are fleets without telemetry that manage risk very well and improved collision and claims rates,” firms that have fully embraced telematics have seen some dramatic benefits.
“One company had fuel savings of 10 percent in less than a year, which represents a full return on their investment in the technology, while another company experienced a 53 percent reduction in claims costs over one year,” he says.
But he insists that telematics needs to be part of a bigger picture to make it effective. “It is a very, very useful tool in the risk management toolbox, because it is so immediate and dynamic,” Price says. “But we recommend combining entire data universes to get a holistic view of risk.” And he strongly agrees with Verhaeghe in saying that it is important to “button down the right vendor to meet the fleet’s specific risk management needs.”
Siegfried Mortkowitzis a regular contributor to TU.
For more on fleets, see Industry insight: Fleet telematics.
For more on insurance, see Industry insight: Insurance telematics.
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