Insurance telematics is gaining traction in Europe – particularly Italy and the U.K. The technology is there – but what are the developments in the regulatory and legal framework? And what about consumer confidence? Christine Whitehouse investigates.
Insurance telematics, or usage-based insurance (UBI), has the potential to change motor insurance. It’s increasingly viewed as a fairer alternative to traditional risk policies based on age and occupation, which do not take driver behavior into account.
Whether 44 million Europeans will be using UBI by 2017, as predicted, is debatable. What's not is the unprecedented amount of data – “lots and lots of it… to some, overwhelming at first,” Ian Brown, managing director at Towergate Smart Motor, told a gathering of industry executives at Insurance Telematics Europe 2013, a Telematics Update conference in May. “And the first time it’s not used properly, with the right integrity, it will have repercussions for everyone.”
(All Insurance Telematics Europe 2013 presentations are available on demand through TUWebcast.)
Dave Evans, group manager, business and industry, at the British government-funded Information Commissioner’s Office (ICO), which promotes data privacy for individuals, agrees. “Insurance companies will need to back an open, transparent approach to data collection and sharing if the uptake of UBI is to proceed successfully.”
To that end, the Association of British Insurers (ABI), which represents insurers’ interests; the Financial Conduct Authority, which regulates the insurance industry; and the ABI have collaborated to produce best-practice guides that cover consumers’ rights and the industry’s responsibilities.
They have identified three issues of concern: transparency, data security and individual rights.
If a consumer wants to take out an insurance policy that more or less relies on telematics data, they need to be sure they understand exactly what data are involved, and how it will affect premiums. “Insurance companies are – or should be - well versed in explaining complicated concepts to consumers,” Evans says. “But telematics is quite new, so they need to be careful to explain things properly in a way that allows the consumer to make a sensible decision about whether they are happy for this to happen, whether they understand what’s going on.”
Most insurers using telematics collect similar data – absolutes (location, mileage, time on the road, speed against limits) and behaviors (how brakes are applied, how a corner is taken). What differs is the interpretation of this data. Some pay-how-you-drive policies place limits on where or when a vehicle can be driven; others apply a fixed charge if the vehicle is driven outside set hours.
In the U.K., telematics will not necessarily be used to offer cheaper premiums on first purchase, although the government has said it wants to see the premiums of newly qualified drivers reduced. But it could be used to offer a discount on renewal. There are other, less obvious benefits which insurers need to communicate to customers. They include tracking services to help locate a vehicle if it is stolen, emergency services in the event of an accident and improved claims handling.
Of course, consumers could see telematics as a double-edged sword – if claims can be expedited, they can also be repudiated. Brown says he hasn’t yet heard of a case where this has happened – as he says, “There’s no commandment stating, ‘Thou shalt not speed’” – but British insurers would do well to keep an eye on the situation in Italy, the world’s largest telematics insurance market.
There, telematics has long been used to track stolen vehicles; now, driver behavior scores are shared and compared on social networks. Italian drivers, particularly young ones, pay some of the highest insurance premiums in Europe, nearly €3,000 a year, more than twice what a novice driver in Germany would pay. The market has thrived in recent years because large discounts, sometimes 20%, are offered to customers.
“It’s normally good drivers who are willing to install UBI,” says Matteo Collina, a researcher in telematics at the University of Bologna’s Digital Enterprise Research Institute. “But there is a fear that insurers will leverage the data they collect and not pay out for accidents if the driver has been seen to be speeding, or going the wrong way down a one-way street, or running a red light too often – even if that behavior is not linked directly to the accident.”
Evans comments: “The insured party might have taken out a policy, thinking, ‘Great, I’m going to get a fantastic discount.’ And if they are focusing on the saving, they may not have been made aware of other stuff, such as how driving habits are being scrutinized. You could ask: could a consumer reasonably be expected to anticipate that, that was going to happen? If not, the data might not have been collected fairly.
“The insurer needs to be transparent. If using data to determine when to pay out and when to penalize, this needs to be made clear to the customer. The person taking out a policy needs to know what they are letting themselves in for.”
British insurers are at pains to reassure consumers that telematics data will not be shared with the police or other authorities except when compelled (or when the customer has given consent) and that a clearly defined and explained procedure will be followed.
Telematics applications allow for the continual collection of lots of data that enable the build-up of a detailed picture of someone’s activities. Whether the data is collected via a black box installed in the car, a smartphone app or built into the vehicle, there is the possibility it could be hacked into andcollected, processed or disclosed illegally– even, in a worst-case scenario, result in malicious behavior.
“The degree of connectivity and the degree to which we will be able to share information will jump to a whole new level,” says Raphael Cohn, co-founder of data management firm StormMQ and secretary of OASIS Open, a campaign for international standards in IT. “Data controllers need tobuild in security to all aspects of products and services at the design stage if they are to gain widespread consumer acceptance.”
When a policy is terminated, consumers should be given the option to have any telematics tracking device removed from their vehicle. He or she should also be able to easily delete any smartphone app. Transmission of data needs to stop immediately.
(For more on this, see Telematics, data privacy and UBI.)
A person has the right to contact an organization that is collecting data on him or her and ask to see that information. Telematics will make responding to access requests more complex because of the sheer volume of information (how should the data be presented to make it ‘manageable?) but also because most pay-how-you-drive policies provide feedback to customers via an online web portal. A named driver will find data on their driving performance is being shared with – and therefore potentially monitored by - the policyholder through the web portal. An insurer must seek permission to share this information when the policy is purchased.
The ABI is currently lobbying against proposed European Union legislation that will provide for “data portability” – the right for consumers to use their data ‘scores’ to shop around for better deals. Ben Gaukrodger, policy advisor to the ABI, says: “Such regulation is unsuitable for a market that’s in its infancy and developing quickly. It could mean that providing telematics insurance, with initially high investment costs, could be a loss-leading game for insurers.” That’s bad news for consumers as well as insurers in the long run: as costs are forced up, the consumer will lose out as discounts will need to be reduced.
The legislation is likely to take two years to be passed – or not – as there are more than 3,000 amendments tabled. That’s not the only challenge facing the industry, however: an ICO study into public attitudes to data protection found that 97% of those surveyed did not trust organizations not to pass on or sell their personal details; in spite of that, only 10% of businesses were aware of the legal limitations of how they could use data. This disconnect is something that insurers will have to address, perhaps more proactively than with good practice guidelines.
Telematics information will be an attractive data resource for third parties, and insurers will have to ensure that they are not tempted by an additional revenue stream (so far, they have said they will not be.) The ICO has stressed the legal imperative of handling customers’ data correctly. It has increased the number of audits of data controllers by nearly 40% and is looking at civil enforcement action (levying fines of up to £500,000) in some 1,300 cases.
In today’s world, data is power, and legislators are anxious to give that power to consumers – to get better prices and better protection. Businesses that don’t meet expectations are going to find themselves quickly losing customers.
Christine Whitehouse is a regular contributor to TU.
For all the latest telematics trends, check out Telematics Japan/China 2013 on Oct. 8-10 in Tokyo, Telematics Munich 2013 on Nov. 11-12 in Munich, Germany, Telematics for Fleet Management USA 2013 on Nov. 20-21 in Atlanta, Georgia, Content and Apps for Automotive USA 2013 on Dec. 11-12 in San Francisco, Consumer Telematics Show 2014 on Jan. 6, 2014, in Las Vegas.
For exclusive telematics business analysis and insight, check out TU’s reports: Telematics Connectivity Strategies Report 2013, The Automotive HMI Report 2013, Insurance Telematics Report 2013 and Fleet & Asset Management Report 2012.