With the increasing use of new technologies that make driving much safer, leading reinsurance firm Swiss Re has stressed the crucial and long-term role of telematics in further digitising motor insurance.
In its recent report, titled Telematics: connecting the dots, Swiss Re stated that adopting telematics is a clear and strategic decision and the first step for insurers to prepare for fully autonomous vehicles.
According to a recent study by HERE and Swiss Re, automated driver assisted systems (ADAS) features could cut overall motor accident frequency by 4.3% by 2020. This will help to reduce the number of fatal road traffic accidents worldwide, which are currently at 1.2 million per year.
Swiss Re’s long-term forecast for the 14 largest motor insurance markets indicates that this segment will be worth an estimated US$594 billion (AUD$770.1 billion) by 2020. This implies that until then over US$20 billion will be trimmed from annual premiums as a result of automated car technology and increasing road safety.
Swiss Re says insurers can utilise telematics to tap into the opportunities presented by the growing connectivity and automation of vehicles, even before fully driverless cars hit the road. One area which holds great promise for insurers is the area of usage-based insurance (UBI).
Telematics-based UBI products will allow insurers to offer new solutions for more customised insurance policies. Telematics data will enable insurers to assess the risk of individual trips, and consequently offer insurance contracts that increasingly deviate from the standard annual contracting period. From mileage-based products, insurers could soon offer coverage for individual trips.
User-based insurance growing quickly
According to Deloitte, UBI is a fast-growing market, with the number of global users expected to reach 89 million in 2017. It’s early days, but if predictions prove correct, it’s likely Australia and New Zealand will see an increase in similar UBI products and a greater uptake in line with international markets. In the meantime, the US can be looked to for insights on its evolution.
In a 2014 survey conducted in the US, consumers were asked about their willingness to be monitored by auto insurers via a smartphone app. While 26% said they would be willing, an additional 27% said they would depending on the size of the discount. Overall (if the discount was enough), that’s potentially 53% of respondents who said they would be willing.
Age was a big factor in determining willingness. For example, in the 21–29 age group, 35% were willing to be monitored (with no discount), while in the 60+ group, just 15% were willing (with no discount). When offered a discount, another 27% of the 21–29 age group were willing, while the 60+ group saw another 28% willing.
Of those open to the idea of being tracked, in terms of rewards, 81% of those who were willing to be monitored said that in order to be tracked they would require a discount of 11% or more.
So how has that shaped the product?
Progressive is one of the largest car insurers in the US and since 2004 has offered some kind of UBI option. Since 2010, it’s offered a tracker called Snapshot, which operates via a plug-in device. Last year Progressive said Snapshot had more than three million participants.
Progressive claimed to have run the most in-depth study of usage-based insurance ever conducted. It said it analysed data across 15 years tracking five billion driving miles. Off the back of this research, its case for converting consumers to Snapshot sounds fair.
Progressive said that actual driving behaviour is the leading variable in predicting a driver’s risk and far more accurate than traditional markers like a driver’s demographic profile, age, and the year, make and model of a vehicle. It also claimed that the majority of drivers are lower-risk drivers who end up subsidising the minority of high-risk drivers.
At the moment, Snapshot’s rewards are decreased premiums. In current marketing, Progressive claimed that seven out of 10 drivers receive a discount, which can be as high as 30%, and the average customer saves $150 a year.
Telematics will also provide insurers with the opportunity to enhance their motor insurance offerings with value-adding services and gamification. Through these, Swiss Re said insurers can potentially positively influence policyholders’ driving habits, strengthen customer loyalty, and benefit from valuable cross-selling opportunities, such as for travel or household insurance.
Telematics can also facilitate more efficient and accelerated claims handling. Crash detection through telematics data can ensure more timely payment for the policyholder and less costs for the insurer through less involvement of claims’ handlers and lawyers.
Another benefit is that it will allow insurers to direct the policyholder to its preferred garage network, which Swiss Re notes is increasingly being owned by OEMs and other third-party providers.
All these factors taken together can improve both customer experience and insurers’ results says Swiss Re.
Swiss Re notes, however, that many insurers, especially small and medium-sized players, may find it challenging to bring telematics to customers as it can be resource-intensive, complex, and costly. But while it is more costly to develop telematics insurance policies than standard products, Swiss Re says that so are the opportunity costs of missing out.
