July ITL Focus: IOT

ITL FOCUS is a monthly initiative featuring topics related to innovation in risk management and insurance.





While many of us in the industry have applauded the progress by telematics and other forms of the Internet of Things, we've learned the hard way that policyholders often don't see things the way we do. 

Where we see data gathering that will let us price more accurately, rewarding those who pose lesser risks, some policyholders see an attempt to punish them. Where we see the opportunity to help policyholders understand their risks, giving them a chance to reduce their exposure and head off many losses, some policyholders see Big Brother.

This tension came to a head for me earlier this year when a man sued General Motors and LexisNexis and sought class action status based on the claim that they were spying on his driving behavior and had unfairly caused his rates to double. An article in the New York TImes detailed how this "spying" works. The reporter followed up with a story on how car-related apps such as Gas Buddy may also be monitoring driving behavior and sharing the information with data brokers, which sell the information to insurers. 

To try to understand how big a threat the "your car is spying on you" premise could be, I turned, as always with any telematics issue, to Matteo Carbone, founder and director of the IoT Insurance Observatory. 

Matteo was less concerned than I've been, as you'll see if you read this month's interview. He said that the original equipment manufacturers (OEMs) like GM acted quickly to stop the kind of behavior that's the basis for the suit. So did the data brokers. 

More broadly, he said the real issue isn't privacy. He said policyholders will share even the sort of data that the NYT article referred to as possibly spying – but only if they get a meaningful benefit in return. The real issue, Matteo said, is that insurers aren't offering enough in the way of benefits to policyholders. 

He said auto insurers have never changed their value proposition to consumers, even though examples exist in life and health insurance that show what will make customers respond. 

Matteo pointed to two other structural problems for telematics and usage-based insurance (UBI) that are well worth pondering, too. He said insurers just offer UBI to new customers, which are a modest subset of the market, and should offer it to existing customers, too. Insurers also need to offer incentives to agents, Matteo said, to encourage them to present UBI to their clients. At the moment, telling a client that UBI could cut their premium by 40% if they drive well is creating the chance that the agent's premium will likewise be cut by 40%. 

In case you're still wondering just how effective telematics can be, Matteo provided some numbers I hadn't seen before that dramatize the advantage that Progressive has achieved through its telematics program.

All in all, an interview well worth a few minutes of your time. I hope you'll check it out.


"Let's separate perception from reality. If we look at the perception in the insurance community, in the OEM community [the big car makers, known as original equipment manufacturers], sure, this is perceived as a big issue. But if we look at the reality, I'm not convinced that the issue is so big. "

Read the Full Interview

"I foresee a future where insurers will go beyond the inquisitive bad cop and be more friendly. Any carrier can obtain the same pricing sophistication by offering an insurance proposition such as, 'You provide me verified information that you are better than the average policyholder, and you will receive great benefits.'”

— Matteo Carbone

Read the Full Interview



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Insurance Thought Leadership

Insurance Thought Leadership (ITL) delivers engaging, informative articles from our global network of thought leaders and decision makers. Their insights are transforming the insurance and risk management marketplace through knowledge sharing, big ideas on a wide variety of topics, and lessons learned through real-life applications of innovative technology.

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