Top 6 Reasons InsurTech Firms Adopt Telematics
Telematics attracts much attention for an apparent reason: all drivers have a unique driving style, and conventional insurance rating methods – like age, car model, or marital status – are limited in their ability to measure driving behavior accurately.
For years, insurance companies have calculated consumer pricing based on generic and dated information associated with a driver’s characteristics, unfairly burdening teens with hefty monthly payments.
But what if the premiums are customized based on an individual’s driving style? What if insurers can quote a more competitive rate while properly managing their risk?
This is what telematics solutions offer.
Telematics use in the auto insurance industry
Telematics is a technology used to monitor and capture information related to an individual’s driving habits with the help of telecommunications devices embedded into a vehicle. They allow the sending, receiving, and storing of telemetry data and visualizing it on software platforms. Telematics systems connect with GPS and the car’s onboard electronics like OBDII port. The device collects a range of car-specific information and relays it via mobile data and cellular networks in real-time.
Considering that driving is such a complex activity, there is a host of information that insurers can collect to measure the quality and risks of individual drivers. Telematic tools can measure mileage, cornering speed, acceleration, location, fuel usage, braking, and more. This information can provide in-depth insights into a person’s actual driving behavior.
Telematics introduces entirely new business models that blend insurance, mobility, and technology.
Variations of usage-based pricing
Usage-based insurance (UBI) programs, also referred to as pay-as-you-drive (PAYD), were the first products that began to appear in the US market. They provide evaluation and analysis of certain risk factors for pricing the account utilizing real-time telemetry data collected through the plug-in device, a mobile app, or equipment already installed in a vehicle. UBI helps in customizing the offering as per the customer’s driving style, rather than relying on driving history and generic information. Generally, this type of auto insurance determine the rates by considering:
- How much a vehicle is driven
- Where it’s driven
- When it’s driven
The cost of PAYD depends on how far a car is driven, but may also extend to correlate to an individual’s driving behaviors. The collected data gets sent to an insurance agency for assessing the risk profile of a specific driver to reward safer drivers with discounts on their policy. For instance, a person smoothly driving the same vehicle might pay a lesser amount as opposed to someone driving in a rush.
The world of telematics has drastically evolved. Advantageous UBI programs have expanded across the sector and promoted the greater acceptance of this insurance mechanism. In the USA, leading insurers have incorporated telematics-driven systems, and most states have approved such programs striving to improve fuel consumption, emissions, and highway safety. It offers a proven background for building and introducing complement services that utilize state-of-the-art data analytics tools to deliver more value to policyholders.
Technology progress has resulted in the emergence of more sophisticated programs that can measure a broader range of patterns and help carriers to estimate the driving style more accurately. Pay-how-you-drive (PHYD) plan allows determining how fast the driver is taking turns and braking to calculate risk and create a tailor-made insurance plan.
Another policy – manage-how-you-drive (MHYD) – monitors not only conduct but also give the driver feedback to promote safe driving habits.
Insurance-related businesses that implement telematics capabilities will be well-positioned to reap the benefits of revolutionary transformations that are unfolding in the industry.
Why adopt telematics solutions?
Here are six reasons insurers should embrace telematics-based systems:
1. Cheaper solutions due to mobile connectivity
The growing popularity of telematics solutions is mainly related to the rapid advancement of smart connected technologies, especially smartphones. Although embedded telematics equipment is still feasible and practicable, it’s a rather expensive option for seizing and transmitting high-quality vehicle data. Most drivers already have the necessary equipment – mobile phones – that can be leveraged by insurers as a lucrative tool for accessing vital driving measurements.
The emergence of smartphones and their widespread adoption provides valuable technology and unique opportunities to overcome the cost-inefficiency of traditional telematics implementation. Modern mobile telematics systems enable superior data collection using mobile phone sensors with the ability to perform comprehensive analysis and compare the information of thousands of users. In 2019 the number of active insurance telematics policies achieved an impressive 27.5 million.
Smartphones give insurers cheap and easy access to a wealth of useful data. This way of capturing data combined with AI-powered tools and vehicle dynamic expertise capabilities allows auto insurers to build more cost-effective UBI programs. Moreover, by collecting all of the information related to a large pool of users, insurance agents can discover new trends and start to understand how drivers behave at certain times of the day, in urban or rural environments, even while driving specific types of vehicles.
2. Personalized offers that meet customer needs
UBI outsteps the limitations of the traditional model, bringing opportunities for creating and delivering the products tailored to the client’s needs. If we take the generic information of two individuals like the age, location, a model of car, they may seem similar. However, offering a flat insurance price to both drivers for the same age or type of vehicle is far from reality as their driving styles and interests in insurance products could be completely different. UBI programs enable automotive insurtech firms to offer relevant products to policyholders, building stronger relationships with consumers.
Telematics allows you to understand the clients’ demands and deliver what they need. By granting your customers more control and providing transparency over their insurance premiums, you can boost user experience and strengthen loyalty. Recent research by Cambridge revealed that the vast majority of US drivers would prefer insurance premiums to be calculated based on how safely they drive.
3. Enhanced customer engagement
Insurers can effectively increase consumer engagement by providing immediate personalized feedback, incentives for safe driving, or introducing gamification experiences through the in-app embedded services.
Auto insurers can leverage telematics mobile applications to create driving contests among policyholders where the safety and distraction scores will determine the winner. Gamification is one of the most forceful yet engaging methods of encouraging safe driving because the incentives are on the table to reward the best drivers, such as gift cards, gas vouchers, and others. The Insurance Research Council recently conducted a survey revealing that 80% of drivers who participated in an auto insurance telematics program reported changing how they drive though not all the changes were permanent.
4. Improved claims handling
Telematics plays a crucial role in accident damage estimations and incident investigations. Thanks to the introduction of accident detection capabilities in systems, it can help advance the claims process, lower costs, and reduce fraudulent claims.
Accidents are very emotional occurrences, and people often have difficulties recalling the details and facts. The driving data from telematics render contextual information around the accidents, thus assisting to reconstruct the picture of what has actually happened. For example, it can report the direction of the car and whether there was hard braking.
So if a customer gets in a car crash, the first notice of loss data is instantly sent to the insurance company allowing them to initiate a more effective claims process. It will ensure the right adjuster is assigned to the claim and a high level of service is provided. With the ability to respond to incidents in real-time and shorten the claim cycle time, you have a better chance of attracting new clients and retaining the existing ones.
Telematic tools also help insurers fight fraud by analyzing the driving data during the accident. The carriers can accurately ascertain who was at fault, thus cutting down on fraudulent claims.
5. Reduced costs associated with claims
Immediate proactive communication by the insurance provider to the policyholders can be essential in immediately deploying resources to the accident scene if necessary and addressing the client’s needs. This can mitigate the cost of unnecessary emergency response equipment and high towing and storage charges, which ultimately add to the overall cost of a claim. As the Mordor Intelligence report states the telematics-based UBI program allows lowering claims-related costs by 55% on average.
Continuous connection to users enabled through telematics solutions allows you to increase efficiencies around the claims process and cut costs while also delivering faster service to the client.
6. Better risk assessment
Instead of relying on statistics, past trends, and broad demographics, telemetry data enables evaluating risk profiles, minimizing losses, and pricing policies according to the current driver information. For example, a low-mileage driver who lives in a city might be offered a pay-per-mile plan.
If you create an auto insurance program that rewards policyholders for safe driving, you will entice lower-risk customers, paving the way for minimum risk. Personalized feedbacks, driving tips, and discount benefits for safe drivers will lead to a general improvement in driving habits that can result in reduced claims.
Upon finding the risks associated with the policyholder’s driving style, the InsurTech firms can provide timely feedback reducing the chance of a claim. The immediate telematics’ data is quickly moving to more predictive analytics solutions that will provide assistance in identifying potential injury and produce quicker repairs.
Telematics offers new, lucrative revenue streams, and far more accurate and profitable pricing models – bottom and top-line benefits that would create a huge advantage for insurers. By putting together a suitable telematics strategy, carriers can develop tailor-made policies with flexible rates and improve their position in the market.
There are two ways by which you can create a roadmap for telematics data collection – through company-provided wearable devices or through apps that can run on a customer’s smartphone. In most cases, telematics and UBI are new programs for insurance providers. It isn’t a simple proposition to adopt. But with the support of the right technology partner, the implementation of suitable forms of insurtech solutions increases the chances for success. ApexTech is a reliable software company that can assist you in the careful planning of the system and creating superior data analytics capabilities to unlock the next generation of value-added services benefiting you and your customers. You can view how we helped one of our clients to adopt a telematics solution.
The connected life is upon us and insurers have an unprecedented opportunity to take advantage of it. Auto telematics is just a small slice of the insurance pie as the same products emerge in the property & casualty insurance sectors. Soon vehicles will be connected to smart homes creating an ecosystem for managing the emerging connected life. Insurers should start with telematics now to meet consumer demands for a frictionless customer experience or will be at a disadvantage in the future.