Chris McMahon Insurance Experts' Forum, September 7, 2012
The technology behind telematics and usage-based insurance is now mature enough that insurers can get a program up and running with relative ease. Telematics services providers, of which there are many, can manage virtually every aspect of a telematics program, from sourcing the hardware, managing connectivity, gathering and analyzing the data and creating an insurance score upon which to base the costs. That’s to be expected, and that was the overarching message from the Telematics USA show in Chicago this week.
The real value of a show like this goes beyond the overt marketing messages and lays in the first-hand validation of these ideas from insurance regulators, car makers, vendors and the insurers themselves. Telematics is no longer some abstract technological possibility, but the eventual and natural result of multiple technological, economic and societal trends, including value shopping, perpetual connectivity, big data, consumer-loyalty programs, gamification, and more abstract ideas, like The Forever Health Monitor, which in short is about measuring everything, from individual performances to what one consumers and produces.
One of the more compelling and interesting ideas that supports the eventuality of telematics-based auto insurance came from Robin Harbage, director at Towers Watson, who spoke about the evolution of the telematics value proposition.
So far, insurers have been touting telematics as way for consumers to score discounts on auto insurance; but if you combine lower premiums and large upfront costs associated with planning, creating, testing and launching a telematics program, it’s no wonder that many insurers are taking a “wait and see attitude,” which has slowed adoption rates and delayed the achievement of a critical mass of insurers offering programs and consumers buying them.
In his presentation, Harbage described the evolution of telematics’ value:
• Marketing discounts, which appeal to self-selecting consumers, those who consider themselves to be safe drivers, or low-mileage and therefore low-risk drivers, and value shoppers. High visibility examples include Progressive’s Snapshot and State Farm’s In-Drive Co-Pilot.
• Marketing value-added services, which are designed to segment and appeal to higher value customers, (as exemplified by State Farm’s In-Drive Connect, the mid-tier offering which offers a range of reminders, diagnostics, driving tips and other apps).
• Marketing added security, (exemplified by and In-Drive Guardian, the “all-inclusive” offering that adds on incident alerts, emergency calls and roadside assistance).
• Personal goal achievement, which would be targeted at the more than 60 percent of drivers who don’t select basic usage-based insurance.
Telematics, in addition to offering a way to offer differentiated products in a crowded and
commoditized space, Harbage said, can significantly contribute to claims reduction and enhanced risk segmentation. The trick is to find the right tools to support your company’s definition of success, whether it’s a simple usage-based insurance product or a more expansive, and expensive, offering, and derive the data you need, not just the data you’re given.
He referred to the “intense data” coming out of telematics programs, which has real value for rating risk on a per-policy basis and as a segmentation tool. The caveat, however is that it’s easy to overspend and that the devices are just tools, not solutions.
Chris McMahon is a senior editor for Insurance Networking News.
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