2nd May 2016
The cars we drive are becoming more intelligent. In fact, the average family saloon has more computing power than Apollo 11, the ship that first took man to the moon! One major aspect of this intelligence is Telematics, the information your car gathers as it is driven.
Typically, Telematics is any integrated use of telecommunications and information, any data that is gathered and then transmitted for storage and use at a later date. In the automotive sector, Telematics is the more generic word used to describe the data that is generated by a vehicle and sent for analysis and management by the manufacturer, or other interested party. At present this data is primarily used for logging car performance for manufacturers but it is increasingly also being used to track drivers’ habits for insurance companies
In regular surveys, over 80% of people believe themselves to be good drivers. Sadly, most insurance companies don’t agree with this and many of us still feel that we are paying over the odds for the car we insure. With the EU Gender Directive implementation now complete, insurers are increasingly deploying technology within vehicles that records driving information in order to allow them to set premiums that reflect the driving style of motorists. Commonplace is the practice of installing tracking devices into vehicles to record information that should enable the insurer to diagnose the risk faced by that driver more accurately.
For example, higher speed (average or peak) might indicate greater risk; likewise greater distance covered relates to greater exposure. Other potential diagnostics include: time of day when the vehicle is being used; location; cornering at excessive speed; acceleration/deceleration and types of roads used.
The diagnostics from the Telematic black boxes can be gathered second by second for all journeys. This creates many advantages for insurers in tracking this data:
- Differential pricing
The EU Gender Directive may have created a way for female drivers to avoid large hikes in their car insurance premiums. Also, it could reduce the cost of young drivers’ insurance, allowing them to be rewarded for better driving habits.
- Driver benefits
No claims discounts can be worked out relative to mileage, rather than years, which is seen to be a more accurate exposure measure. Providing feedback to customers on their driving behaviour could encourage them to become better drivers, leading to safer roads.
Delays in reporting accidents to insurers would be reduced, and while more accurate reporting of accidents and possibly even the cause will make a big difference.
The cost of these devices has significantly reduced since they first appeared in the late 1990s. Yet there are still only about 15 insurers offering or trialling this type of product and until the more dominant insurers enter the market, public knowledge of the technology will remain low. Currently less than 1% of car insurance policies use Telematics and with estimates ranging between 10% and 80% by 2027, it is difficult to predict where the market is heading.
In addition, these black boxes to gather data are only being installed in the cars of younger drivers. There isn’t really any targeting being done to focus the use of such devices to higher risk groups, or indeed drivers with many previous claims. Clearly this is easier where the organisation has a previous relationship, or history with the driver. If that isn’t the case then external data should be getting used to help identify prospects who are likely to be careless or their lifestyle indicates they are more likely to be a higher risk.
From its earliest days, the insurance industry has been data-centric. In the past, insurance companies relied on historical data from policy administration solutions, claims management applications and billing systems. Today, the explosion of new data available is turning the insurance business model on its head. The growth in Telematics has had an especially large influence. Insurance is now a Big Data industry.
One thing is certain: Telematics data will play a key role in insurance pricing in the future.