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Until recently, telematics just supported the interesting and novel little corner of auto insurance known as usage-based insurance. No longer.
Anyone who even casually follows insurance industry business developments is no doubt aware of the recent spike in announcements by TSPs (Telematics Service Providers), auto makers, information providers, insurance carriers and the related articles from industry thought leaders about many new products, programs and partnerships all focused in one way or another on the connected car (and driver). To oversimplify it, this is all being driven by a wide range of opportunities perceived by each of these participants to represent significant monetization of the related data.
Until very recently, telematics supported the interesting and novel little corner of the auto insurance industry known as Usage Based Insurance (UBI). UBI was seen by the industry as little more than a marketing channel and a few carriers – most notably Progressive who used it effectively in their Snapshot program to lure several million new customers (mostly low mileage, safe drivers seeking to be rewarded by discounts for doing little more than connecting a device to their vehicle for 6 months). However, hardware and administration costs plus the phenomenon of adverse selection made these programs marginally profitable, if at all.
But now, as OEMs and others have begun to realize the commercial value of vehicle and driver data, now accessible through increasingly more powerful smartphones and the increasing amount of onboard connectivity appearing in newer cars, numerous new participants and new programs are emerging regualrly. Good examples are the Telematics Data Exchanges introduced by Verisk, LexisNexis Risk Solutions and otonomo, who have attracted large OEs and insurance companies as partners.
Announcements this week alone include;
- telematics insurer Root is in talks with OEMs seeking alternative driver data from connected cars for claims and underwriting
- Milliman, Inc., a premier global consulting and actuarial firm, announced a driving “risk score” created with tech start-up Zendrive that is claimed to be up to six times more powerful than the leading predictive models.
- Octo Telematics to acquire UBI assets of Willis Towers Watson and partner with them on insurance-related products
And over just the past few months of 2017;
- IMS development kit speeds delivery of insurance telematics and connected car programs and enables insurers to simplify and unify app development by integrating telematics and connected car services directly into their existing or new mobile applications.
- Octo Telematics released Glimpse Plus, a digitally-enabled telematics service that provides a reliable way for insurers to gather accurate data on driving behavior, as well as more detailed crash detection and claims analysis. The solution also enables consumers to use their smartphone to monitor their driving habits and become safer drivers.
- Arity, the technology unit of Allstate that was established just last year, is now offering Shared Mobility Solutions to offer interested parties access to risk data and driving analytics.
- Arity also announced that it has entered into an agreement with National General Insurance to build and launch a new telematics program for the insurance company
- CCC Information Services, whose core platform already connects over 350 insurers and 24,000 repair shops, announces new CCC ONE for OEMs platform that links insurers to OEM connected car and vehicle data
- LexisNexis Risk Solutions and Verisk Risk Solutions introduce Telematics Data Exchanges making OEM driver and vehicle data available to insurers
- LexisNexis and TrueMotion join forces to provide smartphone app solutions, data services and advanced analytics, enabling insurers to deliver distracted driving models as well as traditional UBI programs
- LexisNexis Risk Solutions engaged with three auto manufacturers (including Mitsubishi) to provide unique solutions through LexisNexis Telematics Exchange to provide greater insights and ROI for insurers and auto manufacturers
- Verisk Insurance Solutions and Driveway Software introduce a smartphone telematics solution to automakers who participate in the Verisk Data Exchange to deliver greater flexibility to automakers and their millions of customers who own older vehicles and previously couldn’t leverage all the benefits of data connectivity.
And this list is really only the tip of the iceberg. Many more strategies and emerging partnerships and alliances are under development and we can expect numerous announcements over the next few weeks.
For car makers, telematics represents a major step forward in the long sought after upgrade of the customer engagement and lifetime relationship…and the related associated revenues. These include offering location based services in partnership with third party retailers, finally exerting real control over accident management and related triaged services from Towing to Temporary Rental to increased use of OEM parts in repairs and increased direction of accident repairs to OEM certified collision repair facilities. Indeed, it could well include the packaging and sale of auto insurance with the price of the automobile. Proving the point is Ford’s recent leadership change with Jim Hackett taking over CEO duties from Mark Fields who was notably failing to carry Ford into the future of vehicle technologies.
Of particular interest, and now driving renewed carrier interest in telematics, are the various applications focused on Claims and automated FNOL (First Notice of Loss) – the holy grail of meaningful loss cost reduction. When accidents are reported in real-time, carriers can triage critical services such as towing, temporary rental cars, schedule collision repairs and reduce attorney penetration in the event of 3rd party injuries. In addition, automated claims reporting with all of the related accident documentation (including onboard video) will significantly reduce some aspects of fraud and help to determine fault, liability and comparative negligence where applicable. And, maybe most importantly, over time and as individual driving histories and behaviors become more generally available from third party databases (much like credit scores), insurance underwriting and pricing will become more accurate and precise, leading to greater profitability.
Ultimately, we expect to see consolidation on the information provider/TSP side as supply exceeds demand and uptake and we expect to see partnerships of convenience between OEMS and carriers as each realizes their true core competencies (making cars and managing information and claims) and settles for their respective pieces of the large revenue prize.
And while it may seem counter-intuitive that so much energy and capital is being invested in drivers and vehicles even as the proliferation of self-driving vehicles are a virtually inevitable reality, meaningful penetration of fully autonomous cars is still decades away. Moreover, many of the same technologies being leveraged in today’s connected car and driver programs utilize the same basic components and designs upon which self-driving cars will depend. And today’s programs will serve to make consumers more comfortable with the concept of always being connected and sharing driving behavior and other personal information in exchange for some perceived value.
But none of this will evolve much further without overcoming serious challenges from consumers and regulators, foremost among them the long overdue debate and resolution of data ownership, privacy and security concerns. In the end, only permission-based solutions requiring positive consumer confirmation will assuage those concerns (and even then not for 100% of the population), and that permission will require all participants to share potential rewards with consumers. One might look to the EU’s impending General Data Protection Regulation (GDPR) and its severe penalties coming into force May 2018 for guidance in this regard.