Jan Stojaspal reports on the first day of Insurance Telematics Europe 2013
Falling black box prices, growing customer acceptance and smartphone apps are speeding up adoption of insurance telematics across Europe.
The technology gives insurers an unprecedented ability to set premiums according to how much customers drive, or even how they drive. But the vast amounts of spatial and user-behavior data these solutions generate can be overwhelming to new market entrants.
So while it’s high time for insurers to get onboard, unless they want to, in the words of Ofir Eyal, principal, Boston Consulting Group, end up “fishing a pool of very bad drivers,” it’s also a good idea to learn to walk before trying to run.
“Keep all the data to mine for later, but for now just stick to the big ones,” says Johan Strydom, consulting, pricing actuary, The Actuarial Consultants. “For me, it’s make sure you capture the mileage, then capture where and when it happens so that you can adjust it for risk, every mile, and then you can see how much the behavior is.
“The behavior side can be very complex because of the g-forces, cornering, braking [or] acceleration. All these things are very complex to define. And, actually, we all know what a [bad driver] looks like. You don’t have to be an actuary to identify them.”
Focus on big data
Eyal and Strydom were among the more than 400 executives attending Insurance Telematics Europe 2013, a two-day Telematics Update conference that began in London on May 7.
In addition to coping with big data, the first day of the conference focused on the smartphone as a low-cost alternative to professionally installed black boxes, implications of the recent European Court of Justice gender ruling, which requires that insurance pricing be gender-neutral, and whether data standards are necessary.
The urgency to implement telematics came through many of the day’s presentations. “If you still need convincing that insurance telematics is here to stay,” Eyal said, consider the following number: over 50 insurer brands in Europe and the United States entered insurance telematics over the last few years.
To be sure, many things are still up in the air in what is a very new market for many traditional insurers, said Paul Middle, telematics lead at RSA Insurance Group. These things include the need to set up the right operating models so that the data collected can be used effectively and the need to establish symbiotic relationships with OEMs and telematics service providers. “But looking longer-term, it could be the basis for our industry’s future,” he said.
Insurance telematics takes off
According to Frederic Bruneteau, managing director of Ptolemus Consulting Group, revenue from insurance telematics premiums in Europe will grow from last year’s €1 billion to €25 billion in 2020.
And while Italy and the United Kingdom are in the lead as far as adoption is concerned, Bruneteau expects all major markets in Europe to grow, with the biggest drivers being the gender ruling and the implementation of eCall, which is now only 28 months away.
Further contributing to adoption will be the fact that a number of OEMs, including Citroën and Vauxhall, are getting into the insurance telematics business, and that customer acceptance is growing. According to a survey conducted by the Association of British Insurers in the third quarter of last year, 41% of British drivers would consider taking out an insurance policy that uses telematics.
“Insurance telematics has been through the peak and disillusionment phases,” Bruneteau said. “It is now reaching the maturity phase.”
Smartphone apps become viable
While initial solutions were built around telematics black boxes, smartphones are beginning to catch on as a viable, and much cheaper, alternative.
“We are an insurance broker, so we live on the commission rather than the premium, and we just couldn’t make [black boxes] stack up financially,” said Caroline Currie, sales director for Autoline, which was the first in Europe to launch a smartphone insurance telematics app. “It’s as simple as that. At the time, [a black box] was £400, plus the cost of fitting it. The app is free of charge to the customer. So it’s a much more affordable option for us to have.”
Since it launched the app last June, Autoline discovered other advantages.
It is not uncommon for more advanced smartphones to provide better data than black boxes. The smartphone is a great way for customers to test insurance telematics before committing. There is no installation cost. And having the device in plain sight serves as a constant reminder to the driver. “It’s not like a black box that is hidden under the bonnet somewhere,” Currie said. “This sits up on the dashboard. They are more aware of how they are driving.”
Gender ruling to drive adoption
The general consensus on the gender ruling was that that insurers are more likely to embrace telematics solutions now that they are not allowed to use gender to predict risk. This is something to embrace, not fear, said Jonathan Hewett, global CMO at Octo Telematics.
“We are entering a new paradigm,” he said during a panel discussion. “I think one of the things that the ruling has done is to make people start thinking about this move from static factors to the more dynamic factors.
"I don’t think it’s something that the industry should be concerned about as a way of detriment, but really embrace and welcome it based on the data opportunities that are now available to provide fairer and more transparent pricing.”
Data standards require more time
Data standardization also came under discussion on day one of the conference, with several speakers urging the industry not to rush it.
“Why do you want to standardize at the moment?” asked Mark Grant, business development director at insurethebox. “It’s an embryonic situation. There is lots of different ways the market can go. If you try to tie it down now, how much flexibility is there for future innovation?”
Ian Brown, managing director at Smart Motor, Towergate Insurance – Motor Division, also urged caution.
Although five or six key aspects, such as distance, time of the day and severe braking, have already emerged as potential standards, others will take more time.
“One of the areas that we have done quite a lot of work on is the types of road driven,” he said. “Are you spending more time on motorways or on familiar roads? I think a lot of that has some real scope to develop.”
Doing more with less
Strydom of The Actuarial Consultants said insurers are often surprised by how much can be accomplished just using distance and the kinds of roads one travels on.
“In the long run, the bad-behavior guys, if they come into telematics, they exit again because we catch them out, charge them correctly, and it’s more expensive than a traditional insurance,” Strydom said.
“So what’s left is a better-behaving book of business. And once you have that better behaving book of business, you have to differentiate on usage and environmental factors.”
September 2013, Chicago, USA
Insurance Telematics USA 2013