Telematics is rapidly changing from being a basic black box tracking device, to something altogether more versatile. The extra functions that new AI-powered tech offers is also broadening the appeal of the black box from its traditional under-25 customer base.
Insurance-Edge spoke to Graham Gordon from LexisNexis to find out more.
IE: Graham you’ve got a fair bit of experience in this sector, how has telematics changed?
GG: Most of my working life has been based around telematics and I spent a lot of years at a company called Masternaut, where it evolved from being a simple location-based product. Around 200-09 fuel prices kept rising, so we had a couple of large clients ask us to analyse ways of saving money by monitoring fleet driving patterns.
There’s a big ROI on getting say, 10,000 drivers to drive in a more economical way. Then a security company asked us to do the same thing and as a by-product, almost an afterthought, we discovered that when you give drivers feedback on how to drive in a fuel-saving way guess what? They also have fewer accidents. Not only that, but the collisions which do occur tend to be a slower speeds and are therefore less serious, in terms of vehicle damage or injuries.
When I came to LexisNexis I started to take a more consumer orientated look at the macro-picture if you like, because telematics goes way beyond fuel-saving for the average policyholder.
IE: All this data is highly valuable for the insurance companies, brokers too?
GG: It is. From an insurers point of view you can see the increased profitability on your motor book that are being made by telematics. Perhaps the primary benefit is that policyholders are self-selecting when it comes to fitting telematics, so that driver is far more likely to be a safer driver. The second factor is that the insurer can cancel someone’s policy if they exceed a certain criteria, points, or whatever. So modern telematics offers insurers the chance to `clean’ their book I suppose.
IE: Telematics has been a `young driver’ carrot and stick product for the last decade or so, how quickly is it reaching an older consumer base now?
GG: It’s picking up all the time and it’s down to policyholders wanting cheaper premiums. But in a wider context, if you look at the accident data from various countries, you can see that young driver collision rates have fallen as telematics use has increased – there’s a direct correlation. Exactly the same cost savings are there in the over-25s sector, the potential benefit across the industry is huge.
IE: How can the insurance industry persuade the majority of drivers to adopt telematics then?
GG: You have three factors which will affect take-up in the medium term: One, the cost of installation has fallen dramatically, and will keep falling. Secondly, you have a change in driver attitude and how people are now more willing to give their data in return for savings. The third reason is that companies can now really innovate in offering a personalised insurance product, with real-time driving behaviour on a phone app, points translating into rewards and so on. None of that has an age limit and in terms of marketing there’s a wide open space out there.
IE: Do you think the mass market in smartphones is going to make it easier to sell the concept of telematics?
GG: Yes because the traditional method of fitting isn’t convenient for many people, so the phone-activated telematics package, something like a plug-in device, is the way forward for many people as they don’t want an engineer coming around to fit something to their car. People often have a family member who has been using telematics in a work vehicle and so they’re getting used to the idea. Interestingly, you don’t hear the old expressions like `Big Brother’ or `Spy in The Cab’ anymore. Times have changed.
IE: Are older drivers switching to telematics for a security reason; knowing where the vehicle is exactly, if it’s one the move at night say?
GG: I’m gonna say no because every bit of research we do asks policyholders to rank benefits in terms of importance to them, and security is well behind premiums and renewal costs. Now this is the biggest selling point for all insurers, because you can offer price transparency to the consumer, based on their driving behaviour – and that’s what they want.
I think older drivers can see the benefits of telematics, but by and large, they aren’t being offered it by the industry overall. The coverage of the young driver market, around 1.1 million drivers, is pretty much complete, and if you look at comparison websites you can see that it’s almost impossible to get a quote aged under 25 without telematics being fitted. So the industry has to reach an older market, over 35s, over 60s even, there’s no reason why not.
IE: Say a retired couple only want to use their car in daytime and early evening – is it going to be worth opting for telematics to save money, will they save enough?
GG: It comes down to a variety of factors with car insurance, and night driving is just one of them but in theory yes, no reason why older drivers can’t get a cash benefit from this technology. Then you have drivers who occasionally use a car, so they might buy say 100, 0r 200 miles of insurance at a time.
IE: Would say the over 60s segment is the next big opportunity for telematics?
GG: Yes because their claims frequency and the associated costs are relatively high. So from an insurer perspective, a technology that can help price the cover more accurately, based on driver data, and manage the claims for effectively based on the pre-incident data download, has to be the way ahead. You can offer various re-aasurance products now which would have appeal for the over 60s.
IE: When you say re-assurance what do you mean exactly?
GG: So, products that monitor if an airbag has been deployed, sudden deceleration or how much g-force has been generated. That can act as a trigger point and be fed to a broker, agent or whoever and that in turn prompts a call to the consumer, just to check that everything is OK. Now that is a really good brand enhancer.
IE: The potential for handling older drivers claims is massive isn’t it?
GG: Yes of course. That snapshot of what happened leading up to the impact, the trigger point when a recovery vehicle was sent out, phone call made etc all helps insurers get involved in the claim as its happening, rather than wait for a form to be filled in a few days later. It’s actually in the insurers interest to get a settlement organised quickly, rather than have a protracted argument about blame that can extend the timeframe of the claim.
IE: I can see how telematics can sort out the typical fender-bender crash, low speed, low cost damage very quickly indeed.
GG: Yes and the thing to remember is that those type of claims are the sorts of incidents that happen hundreds of times a month, and so any savings you can make in handling those claims has a big effect on your bottom line. For some time telematics has been perceived as an anti0fraud device, which it is of course, but that isn’t where the big savings are. Fraud is a small percentage of overall claims. If you can process the routine, genuine claims, that bit smoother than the insurers stand to make a far, far greater saving in the long term.
IE: Do you think one day drivers will have a portable driving history, via telematics, which thay can take with them from one insurer to the other?
GG: That’s where we would like to be. Your driver score is transferable right now, and LexisNexis is developing complex data scoring that is an extra layer, it goes beyond what is being used by the industry right now. In the long term we are looking at an industry standard being agreed, so there is a way to go. It will have to happen at some point, as consumers want to take their score with them and if one company won’t accept another’s score, then we have a problem.
Ideally, you want that agreed driver score to be built into any quote process. It will take time, but that’s the right direction for the industry, as the gap between a claims history assessment, and an actual driving behaviour score, is where the savings are. For both the consumer and the insurer.
IE: Thank you for your time Graham.
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