Library: Adacta – Telematics in insurance: From hard to Install boxes to transformed customer engagement

Executive summary

For years, insurers and customers could benefit from telematics in motor insurance for personalised insurance rates and new products like pay-as-you-drive. We are, however, approaching a new era in telematics where mobile technology, IoT, apps, data platforms, and partnerships are transforming telematics into a new channel in insurance customers’ lives.

Telematics has a big future in auto

Looking at my driving behaviour as claimed by the Motion-S telematics application (well, I always thought of me a bit different than the app does), I realise how far telematics technology and adoption have come over the last 10 years. Back then, it was mainly about the costly telematics devices that were difficult to install and were used for simple premium discounts. Today, we are talking about data platforms, gamification, loyalty programs, claims, and more.

Reminiscing about the early days of telematics

Telematics in motor insurance is not a new thing. For more than a decade, insurers have offered drivers the ability to share their driving data for certain benefits, such as reduced premiums and various discounts.

When I joined Adacta in 2015, two large cardboard boxes in the corner of the office I just moved in, caught my attention. It turned out they were full of telematics hardware. The insurance team was keen on the idea that telematics is the way to go in Insurance; thus, Adacta worked with partners to develop a complete solution consisting of hardware, means of data transfer, and rating software that would make use of the data within insurance processes. The idea mostly revolved around personalised pricing, known as the pay-as-you-drive (PAYD) model. And all this was back in 2010.

Even 10 years ago, Adacta saw the potential of telematics. However, it turned out that adoption was slower than anticipated, particularly in the B2C segment. In B2B, the adoption is much higher as telematics delivers clear business value regarding Insurance, fleet and route optimisation, and reduced fuel cost.

The telematics market today

Today, telematics remains an essential part of the shift we see in the market that is moving towards more personalised and engaging offerings. Mordor Intelligence estimates that in Europe, the telematics market is growing at a compound annual growth rate of 28.2%, with the number of active insurance telematics policies in Europe estimated to reach 44.5 million by 2024. While this trend is still unevenly distributed – with Italy and UK making up the bulk of the market – insurers are increasingly focused on making telematics a part of their operations.

This vision is still very much alive in our products and services.

The value and benefits of telematics initiatives

Usage-based Insurance (UBI) which uses IoT data to adjust insurance premiums to reflect driving behaviour in pay-as-you-drive or pay-how-you-drive scenarios is among the more common use cases for telematics. In addition, there are numerous other benefits delivered by telematics initiatives:

• Self-selection: Safer drivers are more likely to enroll in telematics programs, which means fewer risk claims.
• Risk mitigation: Drivers are more likely to drive more safely when using telematics solutions that can be reviewed by their insurer, resulting in reduced risk claims.
• Improved claim management: Data from the moment of accident is extremely valuable as it allows insurers to challenge repair costs and fraudulent claims.
• More accurate pricing: Driver risk profiles help insurers set their premiums more accurately to deliver a better customer experience and drive customer loyalty and retention.
• Improved customer experience: This approach brings insurers closer to their customers, opening up new opportunities to sell additional services.

Overall, usage-based Insurance remains the most straightforward use case. It allows insurers to adjust insurance premiums based on the number of kilometers driven (pay-as-you-drive), based on the actual routes (pay-where-You-drive) or based on actual driver behavior (pay-how-you-drive), measuring parameters such as acceleration, braking, speed and cornering.

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