Article

Increased data connectivity set to take telematics-based auto insurance in new directions

Telematics data marketplaces support insurers and data providers on the journey

August 2016

By Geoff Werner

Smartphones, the Internet of Things (IoT) and connected cars are generating a deluge of new data about people’s behaviors and preferences that have already led to disruption and opportunities in many industries across the U.S. Insurance is in the front line, and particularly the usage-based auto insurance (UBI) market. Geoff Werner discusses the impact and market opportunities for insurers and data providers, including connected car companies and telecommunications providers.

Q: Just how will the explosion in the number of Internet-enabled devices, including connected cars, affect the UBI market?

A: Werner: So far, success in the UBI market has generally depended on how effective insurers are at getting customers to let them collect telematics data from sensors to personalize and more accurately price auto insurance following a trial period. This approach creates uncertainty and friction. In the future, richer data, much of which will be available before someone buys insurance, will enable companies not only to understand and price risk more precisely, but to offer the kind of digital customer experience that people are becoming accustomed to from large online retailers.

Q: So what kinds of additional data are we talking about?

A: Werner: Telecommunications providers, consumer electronics manufacturers, location-based app providers and, of course, car manufacturers, are all sources of data that could enhance auto insurance rating and customer relationships. Many of these providers are actively trying to monetize their data assets through insurance applications.

Q: How are they going to do that?

A: Werner: They could set up insurance operations themselves, but this is fraught with logistic and regulatory difficulties. The other option is to generate income by providing data or new business leads to an insurer or insurers with whom they partner. Here again though, it is pretty challenging to establish relationships, develop suitable IT platforms and generate value-adding customer insights from the data. That’s where a telematics data platform like Willis Towers Watson’s DriveAbility Marketplace comes in.

DriveAbility Marketplace aggregates and analyzes telematics data for convenient, personalized insurance offers

DriveAbility Marketplace aggregates and analyzes telematics data for convenient, personalized insurance offers

Q: What is a telematics data marketplace?

A: Werner: It connects providers of driving data with insurers. Importantly, it overcomes the logistical challenges of bringing together voluminous data from multiple sources to provide a consumer-friendly driver score or related analyses. Participants in our data exchange, DriveAbility Marketplace, benefit from our support of insurers’ telematics-based insurance programs since 2010, accomplished by aggregating data from several providers to develop a robust driver score algorithm. All the essential licenses and rating certifications are already in place, as are the mandatory privacy and data security safeguards needed when dealing with potentially sensitive consumer data.

Q: What are the benefits for insurers?

A: Werner: Competitive advantage, pure and simple. Companies that have integrated granular telematics data into rating plans are better positioned to attract and retain the most profitable customers. They’ll be able to apply that knowledge to new sources of pre-quote data coming on stream, and potentially create new distribution channels for products, and leave those without similar capabilities increasingly vulnerable to adverse selection. That’s not to completely write off companies that are currently less data-driven, because joining a worthwhile data exchange should help them move several steps forward in one leap.

Q: But why should companies bother when some recent reports have suggested that UBI isn’t proving a success anyway?

A: Werner: We’ve seen some of the press reports, but I don’t think the likes of Progressive  would say that UBI hasn’t been a success. Several car manufacturers and telecommunication companies have been very active recently in building links with insurers interested in leveraging these powerful data for their telematics-based offerings. In our experience, success in this market tends to be very closely linked to the level and quality of driving behavior analysis. A key obstacle to mass market acceptance has been the need for a driver to take a UBI policy before its benefits are understood, so that’s why additional insights about someone’s profile and potential driving risk in advance of a quote minimizes this hurdle and will be so valuable.

Q: What will it take for auto insurers to succeed?

A: Werner: That depends on how they’ve advanced toward a data-driven business model. Essential components include a rating plan that optimally integrates traditional factors with telematics data, and the ability to build relationships with data providers, enhance the customer experience and the variety of touchpoints for communicating with them, and recognize the value of different types of data. One thing to note is that big isn’t always beautiful where data are concerned. For example, we’ve seen some UBI driving scores that create less value than simply using someone’s verified annual mileage, even though they were culled from large data pools.

Q: How quickly are the changes likely to happen?

A: Werner: To some extent, they already are happening. Progressive has gone public about its relationships with OnStar and Zubie. Both Samsung and Verizon are aggressively pursuing direct-to-consumer connected car products that will position them strongly to generate data revenues from insurance. These are just a few of many examples you can find with a simple Internet search. If you factor in that virtually everyone already has a smartphone and forecasts that nearly every car on the road will be connected to the Internet in the next five to 10 years, it seems apparent to us that leaders in the telematics space will move quickly to integrate wider data sources and build new partnerships.