Telematics offers opportunity for insurers partnering with carmakers

As the use of telematics proliferates in many countries, improving risk assessment and fraud detection in motor insurance, this technology has the potential to also allow insurers to get much closer to their customers and offer value added services – but they will also be heavily reliant on car manufacturers for further innovation.

Telematics-based motor insurance has recently seen a strong growth in many countries. In the UK, for example, the number of live telematics based motor insurance policies including black box policies has increased by 40 percent within one year, according to British Insurance Brokers’ Association (BIBA) research from March 2016.

These types of policies can offer savings of up to 25 percent for careful drivers. In particular, young drivers who often struggle to find affordable cover can save over £1,000, according to BIBA.

The devices allow insurers to reduce their risk exposure by motivating their clients to drive more carefully through lower premiums but can also offer unrelated perks such as cinema tickets or beverages through partnerships. But this is not all.

At Insure The Box, a managing general agent majority owned by Aioi Nissay Dowa Insurance Europe, the telematics devices include accident alerts. “We triage the alerts into how serious they are,” says Charlotte Halkett, marketing actuary at Insure The Box. After an alert has been triggered a call centre contacts the driver or, depending on severity, directly the emergency services.

Insurers are eager to implement innovations that allow them to remain relevant to their clients.

“The dream of all types of motor insurance, whether it’s telematics or not is to encourage better interaction with your consumer,” says Selim Cavanagh, VP Telematics at Wunelli, a telematics solutions provider. “More interaction of the right type equals better retention and lower claims.”

Possible services insurers could add to their products under the telematics umbrella could include parking spaces, map routing, toll services, weather services or concierge services.

Not every innovation is bound to succeed. Some telematics providers have been working on integrating rewards into the telematics driving experience such as reduced prices for parking spaces which are currently underused. “I can see the value in that for the consumer but it’s a huge cost to integrate that and to make that work,” Cavanagh says.

There may be more potential for insurers to interact with policyholders when accessing car performance data such as motor oil levels or wear and tear levels of parts. In this case they could, for example, warn the cover holder that servicing is necessary and through partnerships with garages guide the client to a convenient servicing partner. This could reduce the number of expensive recoveries for insurers and potentially allow carriers to participate in the profits of servicing centres.

Telematics has produced some interesting directions for further business development, but the code in motor insurance has yet to be cracked, says Cavanagh.

“If you knew when the vehicle was due for service you could drive [policyholders] to the best offer,” says Cavanagh. “There is a big after market opportunity there. You would reduce the need for vehicle recovery, people would just go to their garage or probably to their manufacturer provided facility to get their car seen to or parts replacement,” he explains.

Access to car performance data is theoretically possible through the vehicle’s on-board diagnostics (OBD) port, which currently allows car mechanics to connect a computer and make decisions over potentially necessary repairs. But for insurers, the current option to access the data may not be efficient. Consumers and B2B customers agreed that the OBD port is a poor way for getting the data, Cavanagh suggested. “It’s too difficult, it’s too costly, and too time-consuming for customers to do it,” he says.

In addition, such a solution might raise the risk of data breaches if a dongle attached to the OBD port is connected to the car’s on-board computer, making the car vulnerable to hacking attacks, Halkett says. Access to the port can enable thieves to hack into the car, retrieve its keys and steal it.
And, gathering data is in itself a huge expense, Halkett warns. “What you can do with data is the opportunity, but the gap between collecting the data and being able to do something with it is enormous,” she explains, pointing to required experience, systems and people.

“There is huge growth potential here,” she admits, “but for insurers to get involved would require them to upscale significantly financially, in terms of expertise and technology,” Halkett says.

“There are 100 ways of losing money in traditional insurance, but 1000 ways of losing money in telematics,” she suggested.

However, regarding the use of car performance data there might be a solution which would involve partnering with car manufacturers.

Currently, carmakers don’t like devices being attached to the OBD port and made it difficult to plug in devices to that port as they want only garages to use it for vehicle diagnostics and servicing. Access to the port varies not only between manufacturers and models but also the vehicle’s production date, creating an additional difficulty for its use.

“The challenge is back to the OEM (original equipment manufacturer) to say, we don’t want to access all the vehicle data but we want to access some useful data or facts that help us understand how the vehicle is performing and ultimately, under the EU competition rules, allow the consumer to choose how they replace parts or get the vehicle repaired,” Cavanagh says.

Some big German manufacturers have already started a process allowing vehicle data to be exported either wirelessly or via USB stick in the vehicles, Cavanagh notes. “Over time that data will become a lot more freely available,” he says.

To Cavanagh, the direction of travel involves the manufacturer making a subset of the car performance data available in a “one-way push either via wireless or bluetooth or USB port. “That’s a conversation we had with some manufacturers,” he notes.

Car manufacturers may also make the vehicle performance data and driver behaviour data available to insurers through a central database which connects to the market through aggregators and sales channels, Cavanagh suggests. To him, this would be the best option because consumers are desperate for choice and low cost insurance.

Wunelli already operates via bluetooth to connect its smartphone applications to the telematics boxes and could therefore easily integrate car performance data into its offering, Cavanagh says.

But there are some caveats. Any solution which would allow for an efficient use of the data by insurers will require a cooperation with car manufacturers, he notes.

And, in order to be successful, any use of the data will need scale and therefore a significant fleet size of new and sophisticated cars as these will have the new features integrated first, Cavanagh notes.