Connected Insurance is the fourth evolutionary step in a market that has moved in leaps and bounds since the first days of telematics.
Since its inception around 2005, many insurers have looked at, trialled, or incorporated telematics into their auto insurance products. At the time, the overall cost of the endeavor and the lack of maturity of the solutions did not yield profitable results.
It is estimated that policyholders using telematics auto insurance policies are 15 to 25% more profitable than those utilizing non-telematics policies. So what has changed, and how is telematics now providing results?
Started with the black box
When telematics was first used within insurance, the technology was incredibly expensive and few thought it would be possible to commercialize. Over time, the prices of technology moved from deep install to plug-in devices to evaluate and price drivers.
In the U.S., the use case was primarily short term driver evaluation programs that lasted roughly 90 days, then drivers were asked to return the units to their insurer that then extracted the data and sent them to the next driver.
In Europe, telematics has a greater history with the use of deep install black boxes, but the overall cost limited the offering to high premium segments. Thus for many insurers, telematics was primarily used as a way to gather data on drivers. As such, it became a tracking solution for dangerous drivers. In its first life, telematics was successful in identifying fraud and providing driver-specific information for pricing.
Transition to mobile
In 2012, CMT pioneered mobile-based telematics, enabling the collection of driving data from sensors in mobile phones. When combined with AI, telematics forms highly accurate driving data. These kinds of programs became vastly cheaper to implement because the majority of drivers in North American and Europe had a smartphone which meant they already had the necessary equipment in their cars. Immediately, telematics’ return on investment became much shorter. Additionally, insurers could now provide new value propositions to attract different segments.
With the friction linked to old school telematics gone, leading insurers can now focus on new strategies. These include the ability to use telematics to attract new drivers and use the data in the underwriting process. An example of this new business model is referred to as Try Before You Buy. In this model, the consumer downloads an app, drives and then after a given period of time or distance, the insurer provides a quote to the driver based on their demonstrated driving quality.
Consumer sentiment: Drivers who would sign up for Try Before You Buy in 2019
Brazil – 90%
France – 74%
Italy – 82%
Mexico – 94%
U.K. – 76%
U.S. – 64%
Coming soon: Worldwide Attitudes Toward Connected Insurance for more consumer insights
UBI to Connected Insurance
The technology continues to improve, and with it, mobile-centric insurance has opened up a brand new, direct, constant communication channel. This is what we call the age of Connected Insurance. Insurance is now a digital service with features based on an app with sensor data generating state-of-the-art analytics and feedback to the driver.
Connected Insurance allows insurers to deploy a range of business models that expand beyond basic priced-based, usage-based insurance. The benefit of this smartphone solution comes from the ubiquity of the platform and the ability to engage customers. Some of the new connected business models include reward programs, behavior-based insurance, crash detection, and enhanced claims services. Telematics is no longer just a measurement and pricing tool, but an engagement tool used to promote behavior change.
Customer engagement is at the center of Connected Insurance. At its most simple form, this includes incentivizing improvements in driving behavior. Programs are carefully tailored to provide a mix of instant gratification, surprise, delight, and long term attachment. In incentivizing drivers to improve on how often they over-speed, brake harshly, turn too fast, or use their phones while driving, insurers have the ability to create a relationship with their policyholder. It not only saves both parties money, but it also establishes trust and an easy channel of communication.
Telematics has effectively changed the relationship between insurers and the drivers. With driving analytics and personalized feedback provided after every trip – to both parties – the driver can control their premium, earn rewards, and practice safer driving preventing crashes, all while being incentivized to do so from a beneficial insurer. Through the innovation of telematics technology, Connected Insurance has evolved the insurance playing field.