What insurance carriers can learn from telematics trends
Telematics: twenty years in development
The start of leveraging telematics in the insurance industry goes back farther than most people think. I first started working with telematics initiatives in 1996, saw the first “plug-in” devices in vehicles in 2001, and the first mass-market telematics devices launching in 2007.
By 2011, most of the top 10 insurance carriers leveraged telematics devices within vehicles to some degree.
Then in 2013 and 2014, the telematics industry exploded. I counted about 300 different companies that were trying to develop telematics plug-in devices or services. At this time, the technology and processes were so diverse.
In these early days, three big obstacles quickly became obvious:
- Consumers resisted adoption. People didn’t want to put devices from their insurance companies in their vehicles, especially because some technologies were reported to interfere with car computers. Consumers were concerned, and rightly so, about “frying” their automotive systems.
- Quality of data was all over the place. Insurance carriers had to watch out for pretenders and players who didn’t have the experience to collect and deliver consistent, quality data.
- Data transfer was a challenge. Software glitches and data conversion issues were rampant: one time we noticed mileage going up dramatically over just one month; it turns out it was a miles-to-kilometers conversion issue from a vendor software update.
What’s more, installing OBDII dongles in personal vehicles has always been difficult. It requires the insured to engage in an extra step; that is, they need to make the effort to have a foreign device installed in their beloved vehicle. This has always created friction.
The insurance industry had to overcome these challenges before telematics could become a useful tool.
Thankfully, they didn’t have to work on this problem for long. The use of smartphones changed everything.
How smartphones accelerated the success of telematics
At this point, the companies that had been working with telematics technologies had been doing so for a while and had learned how to make it work consistently at scale.
At the same time, the advent of smartphone apps for telematics data collection significantly improved the process. Downloading and using apps became a familiar step for almost all consumers who have a smartphone. And people with smartphones were becoming more accustomed to allowing their phone to “track” them. People still give up their locations all the time in order to receive more precise and meaningful information about their surroundings.
The request seemed reasonable to consumers so long as they receive a perceived value from the proposition. All that insurance and telematics companies had to do was develop an app and a process to educate the consumer and encourage them to opt in to their telematics program.
Developing a process that works with consumers
Even though the smartphone made the transition easier, consumers have still been somewhat resistant to having big companies track them.
A well-trained agent can help the consumer understand that there are benefits to opting in, such as discounts for safe driving. Once the consumer understands the benefits, they are more likely to accept and download the app. Progress reports from the app will help support their decision.
Note the motivation for consumers is stronger for those who expect a discount because they view themselves as safe drivers. This has always provided a self-selection bias to benefit underwriting and still does today.
After only one or two trips, consumers can see that the program is working: they can see where and when they are braking hard, where and how far they drive, what their resulting driving score is, and what kind of discount may be achieved.
Putting the power of a discount in their hands can be a highly attractive differentiator, especially for younger people who frequently shop around for the best rates from an insurance carrier.
Where We Are Today with Telematics
Smartphone technology has made telematics more ubiquitous, insurance and telematics companies have scaled and fine-tuned their systems, and industry leaders are reaping extensive growth and profits from telematics products.
Overall, the entire personal auto insurance industry is still losing money, but for larger, competitive insurance companies, earnings have been phenomenal, and telematics is part of that.
Companies embracing telematics trends have an advantage over those that have decided to be “fast followers.”
Here are just a few of the advantages of starting early:
- Lead on innovations that benefit the organization and the consumer,
- Inside knowledge of consumer motivation and how to attract and fulfill telematics policies, and
- Improved rating algorithms, pricing, and segmentation ahead of the rest of the industry.
An advanced telematics program takes a long time to set up from scratch, yes, and I know some companies are getting anxious about that. It’s difficult to get up and running on your own, but it’s not too late.
To be a significant player in the telematics space, start now. You can overcome the initial cost of telematics and reap the benefits of advanced mobility data, but you may need two to three years to set up an effective program. You won’t be ready any sooner if you wait until next year to start.
Overcoming the Challenge of the Telematics Start
The technology and data collection through IoT aren’t core strengths for most insurers, let alone manipulating the data and developing processes to convince a consumer to participate in a telematics program.
To accelerate your progress, I recommend partnering with an organization that has been doing this for a while and has experience within the insurance space. I tell insurers to do those tasks that you are great at and find great partners to handle the technology that isn’t their core strength.
Leveraging a telematics resource that has experience in the insurance industry can help the insurance carrier focus on doing what they do best while supporting efforts in a variety of ways:
- Attract better drivers who have lower loss ratios,
- Become more competitive and discover new avenues for profitability, and
- Experience better retention through a continuous connection with your customer.
From Telematics to Relationships
The telematics “trend” started more than 20 years ago and has experienced some tremendous improvements over that time. Smartphone technology and adoption have made telematics programs more acceptable to consumers, and they are more comfortable with their behavior being monitored in exchange for a benefit or service.
Telematics companies have become more adept at partnering with insurance carriers to accelerate programs and services for consumers. The data has become more useful for insurance carriers.
It’s crucial for insurance carriers to base consumer offerings on telematics trends so they can deepen relationships, expand services, and improve margins. That’s the future of the auto insurance industry.