The dearth of historical data
Insurance, for centuries, has been about weighing up the probability of bad (sometimes good – see hole-in-one insurance) things happening to a group of people. Taking some premium from those people. Paying claims when the bad things happened to some of those people. For 99.9% of that time, data has been pretty scant, with insurers for the most part having to rely on proxy rating factors, historical outcomes and trust that their customers would use their very best efforts to avoid the bad things happening.
I know insurance is not gambling, but in a lot of ways, in the past the industry acted as God’s bookmaker.
When a ship set-sail in the 1700’s and 1800’s, we knew the season, the route, the vessel, the cargo and the captain and that was about it. Voyages were long and perilous and the odds of something bad happening were relatively high.
New data, new insights, new relationship
Today, we have far more data – we’ve mapped the planet, we know surface conditions in real-time, local weather conditions several days into the future and the captain can usually determine his vessel’s current position down to the metre. Additionally, data from the vessel’s systems can be analysed and failure predicted of key components well in advance of it occurring, while data from the cargo itself can ensure all is well. To top that off, we can be in direct contact with the vessel at almost any time during the voyage. The game has definitely changed.
Yet, many insurers still think insurance is just about paying claims and profitable insurance is seeing how many claims we can “justifiably” avoid paying. It’s no wonder our customers don’t trust us and why the industry is held in such low esteem. It doesn’t have to be this way.
With the tools and data we now have at our disposal, I would argue, we can enter into a true collaborative relationship with our customers to help them avoid claim events and I’m not just talking commercial risks. Telematics and mobile devices provide all the same advantages I outlined for the modern sea-captain and these are already widely embraced by the public.
So what is Telematics
So what’s “telematics” I hear you ask?
As a child of the 60’s, I grew up on a staple of NASA space missions where spaceship telemetry was an everyday thing. We knew the status of the oxygen, fuel, a myriad of other spaceship systems and even the health of the astronauts. All of this data beamed back to Earth and analysed in real-time. Nothing highlighted this more than the drama of the Apollo 13 mission, where an explosion on the spaceship nearly killed the astronauts. The whole World watched and worried about key data items of CO2 levels, oxygen capacity, battery power, food and water remaining, all delivered courtesy of telematics.
Telematics has enabled us to send space probes billions of miles from Earth and learn something about the places they visited along the way. Telematics helps the best F1 motor racing teams keep their vehicles and drivers out in front. Now telematics allows leading insurers to more accurately underwrite risk, positively reduce risk through feed-back and proactively manage claims as they occur.
What can Telematics tell Insurers?
How accurately? One insurer spent a number of years and 10’s of millions of dollars accumulating telematics driving behaviour data, that allowed them to segment their driving population into 7 categories from worst to best drivers. For each segment they were able to exactly predict the claims frequency and as it turns out the frequency was much higher for the bad drivers than for the good ones.
Another insurance company had a similar experience, except when they provided personalized feedback on driving behaviour and provided incentives, they found drivers improved their safe driving score by up to 30%. This effectively moved drivers from the bad driving segment into the average driver group and average drivers into the safe group.
The state-of-the-art for telematics motor insurance has moved from risk rating to claims management. It is now possible to feed telematics data from the accident into a virtual reality system, which allows the insurer to be right there “virtually” at the accident scene. Based on engineering models, the system can provide an immediate and detailed assessment of vehicle damage, potentially down to the parts likely to be repairable vs replaced. Additionally, with appropriate medical and human anatomical models the likely bodily injuries can be predicted. On the basis of the data, the insurer can immediately alert first responders to the location of the vehicle and likely severity of the injuries sustained to the occupants. This is pretty far removed from the days of seeing a fatal road accident on the 6’oclock news, wondering if our insured was involved and waiting for a claim to be reported.
Who’s using Telematics
If it’s so great, where are all of the new telematics insurance policies?
We’ve been seeing a steady growth of policies underwritten using telematics data roughly doubling every 2 years since 2012. Italy has led the way with over 15% of policies there being underwritten in this way. In the US, Progressive is the undisputed market leader in the telematics space with some $3 billion in annual premiums in 2015 and over 40% of their direct motor business coming from their Snapshot program. Globally around 15.4 million policies and 2.3% of premiums are underwritten using telematics.
In Asia Pacific, we saw the first insurance telematics UBI programs going live in 2015 with Bangkok insurance in Thailand and many unpublicized trials being conducted over the period since, with 4 in Thailand, 4 in Malaysia, 5 in Singapore, 3 in Indonesia, 4 in Philippines and 1 in India. In China, quite a number of insurers including Ping An and PICC launched marketing programs which enabled them to gather driving data since late 2014 but not directly rate based on data collected.
MSIG in Singapore famously announced their UBI pilot study in January 2016 where they invited interested parties to register to participate. Registration is closed now, so I’m looking forward to their results being published in the coming months. AXA in Singapore also launched their UBI program for Grab drivers in May 2016 to make commercial coverage affordable for ride-sharing services. With all of this activity in Asia, we can expect at least 10 programs being launched publicly this year. But is it all a little too late?
Here come the disruptors
At the end of 2015, Honda launched their “Honda Connect” offering, which provided a whole range of telematics powered customer value-added features, including the ability to share journey progress via WhatsApp on a trip-by-trip basis. Insurance was conspicuously absent from their product. However, there is another vehicle manufacturer in another Asian country that is launching an even richer set of customer value-added features and this time insurance will be included – unfortunately I’m not allowed say who just now, so watch this space.
Telcos are also getting into the act with a number launching their own telematics programs and sorry to say fellas, insurance is also on the menu – expect to see something in Thailand, Philippines and China over the next 6 to 12 months. Samsung has launched their own telematics platform with a neat dongle device and have also beefed up their cloud platform to slice and dice the data. Given their huge installed mobile phone base, you can expect their proposition to gain some traction in the market. And this is only the beginning as they all see vehicle telematics as the entree for the main course IoT play which will fuel their growth over the next decade.
The rise of data ecosystems
Vehicle manufacturers, telcos and mobile phone manufacturers are all adept at playing the ecosystem game and they understand the value of data – to their partners and to their customers. In all cases I’m aware of, these “Brands” can actually get customers to buy the equipment needed to power the telematics proposition, whereas insurers are having to stretch their own financial models to give the equipment away. The ability to create value for the customer through the power of shared data within the ecosystem is where the magic happens. The sooner insurers realize this and either form their own ecosystems or join powerful brand-driven alliances, the sooner they’ll be in the telematics business rather than being left on the side-lines with ever increasing motor losses as the good drivers move to telematics programs.
The bottom line
We definitely live in interesting times. New data sources are rapidly becoming available while platforms to analyse and gain insights from the data grow evermore powerful. As an industry, insurers stand on the brink of a new golden age, where cleverly using data and platforms will enable interaction with customers – changing the risk equation for the benefit of all. Telematics presents an obvious first step on this journey – just don’t be left behind!
I hope you had as much fun reading this column as I did writing it. If you did, please let me know by subscribing. If you want to see more of my “off the wall” comments, you can follow me on Twitter @ITInsuranceGuy. Finally, I am keen to hear what you have to say, so please email me at firstname.lastname@example.org and share your views, insights and any stories about technology in the insurance industry.
The author, Andrew Dart, is an Insurance thought leader, telematics practitioner and editor of “Insurance Connected”monthly column for The Digital Insurer.