Telematics, analytics, and the growth in autonomous vehicles
Tech-driven change is the new normal in auto insurance.
An analysis of global insurance trends released in June 2018 by Ernst and Young contends that technology-led disruption will transform the insurance sector over the next few years, and Capgemini identifies the move to embrace advanced analytics as one of the top 10 trends for P&C insurers this year.
But for automotive insurance providers, adopting strategic analytics tools may be a daunting task — both in terms of what lies ahead with vehicle autonomy and where most insurers actually are today in terms of data analytics.
A sector at a crossroads
In the short-term, it is unfeasible for most auto insurance companies to completely “future-proof” their business models. Not only are we years and probably decades away from the ubiquitous autonomous vehicle, the accelerating roll-out of new AI and Internet of Things (IoT) solutions — including the connected car — continues to repaint the landscape.
Nonetheless, autonomous vehicles will certainly drive change in the automotive insurance sector. A KPMG research report titled Marketplace of Change: Automobile Insurance in the Era of Autonomous Vehicles, predicts autonomous-vehicle usage, combined with a likely decline in accident frequency could diminish the U.S. personal automotive sector by 60 percent within 25 years.
Most auto insurers are aware of how drastically their industry is changing. The question, however, is how to move to a fully connected environment that eventually leads to autonomous vehicles — without sacrificing short-term business opportunities and profits.
The answer is to stop thinking of analytics as a business tool, and start regarding it as a fundamental capability that sits at the very core of the way automotive insurance business is conducted.
Building the new paradigm
As far as connected vehicles are concerned, the question is not if, but when fully integrated and connected autos are the norm. The very nature of when the shift will happen puts auto insurers — not to mention the entire automotive value chain — in an immediate quandary.
The dilemma is this: “What can automotive insurance companies do today to start a migration path that is strategically smart and builds upon the new paradigm, rather than opting for a temporary fix?”
As was said earlier, the most critical turning point is to start regarding insurance analytics as a core business operational function, instead of a separate, add-on tool.
Telematics is one of the best options today for getting the shift started, and to develop the necessary analytic capabilities. Rather than being a holistic solution that defines the end-game in absolute terms, telematics measures and, with the right kind of feedback, can improve driver behavioral patterns.
It’s a critical step in the adoption of connected cars and, ultimately, autonomous vehicles. Recent studies have shown that drivers are increasingly open to the concept of connected cars, especially since connectivity is becoming an everyday norm on a number of fronts and will continue to do so. It is estimated that in North America alone, nearly 15 million vehicles will be sold with embedded telematics units.
The benefits to insurers
A recent study by The Floow also asked 400 insurance leaders from across the globe to share what they believe are the primary benefits telematics brings to the auto insurance industry — both today and in the near future. Respondents ranked the 10 most important telematics benefits for insurers, and the findings are compelling.
Forty-five percent of all insurers cited the opportunity to lower claim frequency and severity as the number one advantage telematics brings to the table. Findings also showed no geographic or market-share bias in this case; all insurers, regardless of geography and size, shared a desire for fewer claims and reduced claims cost — all of which is possible today.
Improved loss ratio, more accurate underwriting, lower overhead costs, automated processes, and the potential for selling more business are some of the additional benefits insurers claim telematics has to offer.
Most importantly, in combination with driver training and a structured reward system, telematics has proven to improve driver behavior measurably. Especially among drivers who scored poorly on their initial evaluations.
As automotive insurers continue to incorporate telematics into their standard operating procedures, not only will insurance analytics become increasingly core to their business, driver safety will also improve, and accidents are far less likely happen.
In an industry continually besieged with unexpected tragedies and calamities, the promise of something to gain more control over unnecessary claims, while enhancing and working toward advancing analytics capabilities is welcome news indeed. And telematics does just that.
John Kramer (john.kramer@thefloow.com) is vice president of The Floow, North America, where he leads and manages business strategy and implementation. Based in Sheffield, UK, and with U.S. headquarters in Detroit, The Floow is one of the world’s leading providers of device-agnostic telematics solutions for the auto insurance industry.
The opinions expressed here are the author’s own.
See also: