Siegfried Mortkowitz reports on the second day of Insurance Telematics Europe 2014, a two-day Telematics Update conference in London.
Moving usage-based insurance (UBI) to the mass market, the uses and usefulness of value-added services, and the emergence of car OEMs as UBI providers continued to feature prominently on the second day of Telematics Update’s Insurance Telematics Europe 2014 conference in London.
And the reasons speakers kept revisiting these issues resembled those of a man continually probing a sore tooth with his tongue – on one hand, attempting to dislodge whatever is causing his discomfort, on the other, trying to understand the nature of his pain.
In the context of insurance telematics, the sore tooth is that a product that promises considerable cost savings to clients while helping them become better drivers remains a niche proposition, a frustration beautifully expressed on day one of the conference by Paul Middle, head of telematics partnering, RSA Insurance Group. “If we offered the rates we have now on the market [with our telematics insurance proposition] with a non-telematics product, we’d probably be looking at results about 30% higher,” he said.
Still, it wasn’t until the final panel of day two that a speaker managed to describe, in quite articulate terms, why UBI players were acting like toothache sufferers. “In the UBI space, there’s a great learning experience going on,” said panelist Keith Kammer, senior vice president, international business development, Verizon Telematics. “The information that’s being made available is in vast quantities, and it’s different from what the insurance companies have ever seen before. So, they’re trying to figure out what to do.”
The comment was made after panel moderator Roger Lanctot, associate director, automotive multimedia & communications service, Strategy Analytics, showed slides of documents generated by his and his family’s UBI policies with the U.S. insurer State Farm and after he voiced dissatisfaction with a lack of transparency in how driving scores and discounts were calculated. Verizon provides the telematics services for State Farm’s UBI products.
“That’s why people are struggling with the business plan and what’s the compelling value proposition,” Kammer continued. “They don’t know exactly what they’re going to be able to do with it.”
According to him, UBI has created tremendous excitement among insurers. “But there’s a real lack of knowledge and certainty as to what’s going to sell, what the compelling value proposition is, what you’re going to charge, what the turnover will be,” he said. “You’re not going to know until you launch.”
Little wonder then that one of the issues that occupied the more than 400 conference participants on both days was that of value-added services (VAS) and how to define their value in terms of whether they should earn money or merely help with customer acquisition and retention through product differentiation.
(For our coverage of day one, see Insurance Telematics Europe 2014: Day One.)
Discounts versus value-added services
“Value-added services is key to the improvement of ROI of our industry,” said Cyril Zeller, vice president, global telematics, Telit Wireless Solutions, during a panel discussion called “VAS Paves the Way for Insurance Telematics.” “There is no such thing as a killer application. We believe the killer application is an application you need at the time you need it where you need it.”
He went on to say that in order to improve ROI, UBI providers “need to leverage the installation of a box and the data plan with as many services as people need.”
Fellow panelist Theo-Han Jansen, director, European market development, Verizon Telematics, said the nature of value-added services changes from insurer to insurer, depending on their target customers and the different objectives of the telematics program, but typically the services are used to enhance the product. “State Farm in the U.S. is a good example,” he said. “They are trying to create stickiness with their customers, and not only have it targeted on cost reduction and price saving.”
This suggests that VAS could eventually become an important factor in ROI by enabling insurers to move away from attracting customers by merely slashing premiums and to move towards trying to retain customers with the quality of the product and services surrounding it.
If that is indeed the case, it reflects a glimmer of maturity in a still embryonic industry. But that still leaves the question of how to formulate the VAS offering so that consumers stop focusing on cost savings.
Manjit Rana, director of Ingenin, said that the service has to be important enough to the consumer to distract him or her from the issue of money. “The problem we have in the insurance industry is we’re price-obsessed,” he said. “We think we have to keep driving the price down lower and lower and lower. It’s not about that. It’s about delivering to the consumer something that’s compelling and engaging and interesting to them. And if it’s not interesting to them, then price becomes really important.”
Rana explained that insurance itself was not a compelling field. “Nobody wakes up in the morning thinking about insurance,” he said. “It’s not an interesting thing. We have to make it interesting.” To make a compelling VAS proposition, insurers must, therefore, “look at the problems [consumers] are worried about,” he added. “And they are generally worried about driving and things related to motoring.”
Julie Gibbons, operations director at Autoline Insurance Group, agreed. She said her company ventured into UBI to be able to offer affordable insurance to young drivers in Northern Ireland. “Value-added services means something totally different to them versus their parents, for example,” she said. “Value-added services to a young person is probably more about social media, as a way to attract, engage and retain them. For the parent, the attraction is: I’m going to pay for my 17-year-old’s insurance, therefore, I want to know where he or she is at all times. So, a value-added service is possibly anything that enhances safety.”
However, her view of the primary value of value-added services to the insurer has nothing to do with ROI. “I would see value-added services as a marketing tool, as a way to draw consumers to using telematics to get the data that we need,” she said.
Volvo moves into the UBI space
On the first day of the conference, Pascal Le Merle, manager, sales and marketing services, Renault, described his company’s fledgling venture into UBI. On the second day, Sweden’s Volvo Car Corporation followed suit with a similar announcement. But unlike Renault, which plans to offer UBI both through partnerships with insurers and as a stand-alone Renault product, Volvo intends to play things close to its chest by only offering UBI through its Volvia insurance subsidiary, at least for starters.
A proof of concept will be on the road in Sweden before the end of this year.
According to David Green, market development director, Volvo Car Corporation, Volvo had considered entering the UBI market on several earlier occasions but was dissuaded by the relatively low uptake of telematics.
The introduction of the smartphone into the connected car space “changed the uptake of telemetry in our car,” he said. What also helped was the introduction of in-car touchscreens and the resultant capability to download apps into the vehicle. “That means the public gets engaged and people get engaged … because they see it in the media,” Green said. “And here’s the fundamental for us: people don’t pay for safety, but they do pay for entertainment. And that’s what’s changing it.”
As a result, connected cars are now selling at an exponential rate, to the extent that Green sees them “as being pretty much standard in a few years.” In addition to customer understanding and engagement, there is also the take-up of the hardware within the car, all of which “makes it entirely the right time to look again at usage-based insurance,” Green said.
According to Green, UBI will be more than just a way to increase ROI for Volvo. “We see this as an important part of our customer offering,” he said. “It is a good way for an auto OEM to have a direct relationship with a customer, to manage CRM better. And it is also a good way for us to ensure that we offer our customers a cheap product, which we think we can do because of all our safety equipment.”
However, in a later panel discussion, Lanctot coaxed Green into admitting that Volvo also expected substantial returns from UBI through the first notice of loss (FNOL), which helps ensure that more cars are repaired with Volvo parts and in Volvo-affiliated garages. “Yes, there is a great deal in it for us if we can control repair of the vehicle,” Green said. “And that is a motivator for us to get into the insurance space.”
UBI as a disruption of insurance
Stephen Mills, business analytics strategy lead for Europe, IBM, went as far to say that OEMs could act as powerful disruptors of the insurance space by having a potentially tremendous competitive advantage over others with the data they control.
This raises very important questions for traditional insurance companies offering UBI. Autoline’s Gibbons admitted that OEMs encroaching into the UBI space was a worrying development. However, she remained sanguine. “There’s enough for everyone,” she said. “And there will always be opportunities for brokers.”
But OEMs are not the only competition for traditional insurers in the UBI space. According to Tom Butcher, head of motor products at Tesco Bank, Tesco launched its first UBI product, in partnership with insurethebox, in June 2013, focusing primarily on offering affordable auto insurance to young drivers.
The product rewards good driving and offers such value-added services as accident alert, theft tracking and personalized feedback. Just as Volvo will leverage its reputation for safety, its connectivity and its data, Tesco is trying to define its UBI brand through its retail experience.
“Everything within Tesco starts with the shopping trip,” Butcher said. “The shopping trip is fundamental to how Tesco does business, and that includes what is important for customers in a retail environment. And we’ve tried to translate that into what’s important from an insurance point of view.”
According to Butcher, the most important thing is trust. “Trust is one of the biggest and most underrated customer traits we find at Tesco,” he said. “Trust was a big part of where we started with our proposition, trust and being treated fairly.”
By accentuating traits that are rarely associated with insurance companies and leveraging its access, via retail, to millions of potential customers, Tesco thus appears to present another potentially strong rival in the UBI space for traditional insurers. And this suggests that other, even more powerful competitors may eventually appear, perhaps reducing the importance of traditional insurers even more.
However, there was good news for insurance companies in an informal poll of participants taken on the morning of the second day of the conference. Asked who the most important player in the UBI value chain will be over the next five years, 41% of respondents said insurers, while only 28% named auto OEMs.
The gold rush to the mass market
With the UBI market in flux and uncertainty about what products and value propositions to offer, there is now a plethora of telematics products trying to transform UBI into a mass market success. They all vie for customers with low costs and easy of use while promising to deliver substantial cost savings in insurance premiums.
Two such products were featured on the second day of the conference.
Drivenlower presented a device, which it said overcame, by virtue of being self-installed and low-cost, all the barriers to the mass market uptake of UBI, which include privacy concerns, insufficient premium discounts and uncertainty over UBI’s effectiveness as a cost reducer. What's more, the device, a small box, which attaches to the windshield of a car, comes with a two-way communication capability allowing direct contact with the driver in the event of an accident.
Mark Pearson, business development director at Wejo, presented his company’s smartphone app that, among many other things, offers drivers and insurers a price comparison site where the driver provides his driving data and participating insurers are invited to put forward a proposition based on this data. The driver is then able to select the most attractive offer. “The driver doesn’t have to look for the proposition; the insurance proposition will come to him,” Pearson said.
It can probably be assumed that, as long as the UBI market is characterized by uncertainty, more and more such products will appear on the market, until the nature of the best value proposition has been defined.
However, whatever it is, this proposition must and will be defined by the consumer. As Volvo’s Green put it when asked which player derived the most value from data, “The biggest value has to be for the customer because I can’t make value out of it for me if I can’t make value for my customer.”
Siegfried Mortkowitz is a regular contributor to Telematics Update.
For all the latest telematics trends, check out Data Business for Connected Vehicles Japan 2014 on May 14-15 in Tokyo, Telematics India and South Asia 2014 on May 28-29 in Bangalore, India, Insurance Telematics Canada 2014 on May 28-29 in Toronto, Telematics Update Awards 2014 on June 3 in Novi, Michigan, Telematics Detroit 2014 on June 4-5 in Novi, Michigan, Advanced Automotive Safety USA 2014 on July 8-9 in Novi, Michigan, Insurance Telematics USA 2014 on Sept. 3-4 in Chicago, Telematics Japan 2014 in October in Tokyo and Telematics Munich 2014 on Nov. 10-11 in Munich, Germany.
For exclusive telematics business analysis and insight, check out TU’s reports: Insurance Telematics Report 2014, Connected Fleet Report 2014, The Automotive HMI Report 2013 and Telematics Connectivity Strategies Report 2013.