Tag Archives: connected cars

Driving Into the Future of Telematics

Roadblocks exist for a reason. While often viewed as an obstacle or a challenge, in fact they’re an opportunity to find a solution that’s right in front of you. Take the notion of a mass market telematics programs. In early ideation, telematics was proposed to be a grand, value-generating asset to businesses across multiple lines that consumers would flock to.

Fast forward to today, and we still see some roadblocks and a sluggish adoption rate. But why?

The response that is often given to any question about a relationship involving multiple people or entities applies here – it’s complex. And if someone tries to tell you otherwise, the person simply isn’t looking at the big picture.

Let’s look at that big picture to understand why telematics adoption is complex. The table is set with several players: insurers, automakers and consumers. Each has an inherent and specific limitation that can only be corrected by working together. The question that follows is, how do we move forward? The answer, in short, is looking back to the challenges and how those roadblocks came to be present and applying both innovative thinking and solutions in kind.

Cost and Distribution or Execution

Originally, the main barriers that insurers faced with telematics were cost and execution. In-vehicle devices or black boxes and OBD2 devices discouraged most from participating, and program success was very reliant on consumer day-to day-engagement to make sure the device was functioning properly. Many insurers held off their telematics programs, or stopped and started them.

Today, apps have made telematics easier to execute, evolving to deliver driving behavior data for underwriting and lead generation programs. In addition to feedback, consumers can receive discounts, participate in safe driving reward programs or tap into other value-added services. Connected vehicles, aka connected cars, also make the use of telematics more cost-effective and easier, through taking advantage of the data created by the consumer’s own vehicle. Connected vehicles also open up avenues for the use of telematics data, such as at the point of new business.

Many-to-Many Challenge

Another challenge has been the sheer size of the ecosystem itself and the number of players. Automakers have tried one-to-one relationships with insurers, and some are still pursuing them today. Those past programs were met with varying degrees of success, and time will tell whether the current ones ultimately deliver on expectations. By contrast, insurer-led programs have been more successful, and there are several notable programs in the market today. However, they suffer some limitations in consumer experience, namely that the consumer’s data is really limited to the confines of a particular carrier’s program, and that consumers (and insurers) typically do not see significant benefits from telematics until after the monitoring period is completed (which can be upward of six months).

The good news is that both automakers and insurers are looking to data providers as potential partners to help them. This aligns automakers to both large and small insurance organizations and helps automakers meet their business objectives of increased monetization, data management and, most importantly, improved consumer experience through telematics programs. The arrival of telematics data exchanges changes everything by offering a neutral space for incoming consumer-consented driving behavior data to be normalized and easily incorporated into insurers’ workflows. By giving the customer the opportunity to consent to share data with insurers via the exchange, automakers deliver their owners a better overall experience through opportunities for reduced total cost of  ownership, data portability and improving driving behavior. Insurers that leverage this shift in mindset and take advantage of what I like to call “bridging the gap” are already ahead.

See also: Will COVID-19 Give Telematics New Life?

The Importance of Normalization

Because no data set is alike across organizations, another way of looking at this complex set of relationships is through the lens of linguistics. Imagine three people in a room who don’t have a shared language but are filling the room with indistinct conversation. Sounds hectic, right? However, with a competent translator, the interplay of sound and meaning can be translated into a common language. Applying that analogy to the context of connected cars, the data (language) from any automaker or any other driving data source can be normalized through a telematics exchange and delivered in one easy-to-understand transcript to be used in multiple points – think marketing or lead generation, underwriting and claims – within the insurance process.

Sticking with that analogy, that interpretation of conversation between vehicle and insurer once took an extended period to process for the benefit of an effective usage-based insurance (UBI) program. Today, we are able to harness that power of a comprehensive telematics exchange (translation) in a new fashion. With the recent LexisNexis Telematics OnDemand solution, carriers now have the ability to deliver those same UBI benefits and savings now at the point of quote. This is a game-changer for insurers and consumers alike, who can now forego any trial or initial monitoring periods and offer/receive safe driving discounts and program rewards in real time.

The Appropriate Path

One of the biggest misconceptions we continue to debunk is whether an insurer has to choose one approach and stick with it. The answer is that you don’t have to pick one approach versus another. If you currently have an app-based solution, you can easily participate in a vehicle telematics exchange, as well. The beauty is that, regardless of data collection method, once filtered and normalized the data should tell you the same story. Both approaches can be useful and done in parallel. An app program can help build a relationship with an individual consumer, which can then be kept going no matter the device or vehicle. An exchange partnership allows the insurer to know that consumer’s driving behavior from the first moment they meet and offers the consumer benefit of their driving behavior no matter who the participating insurer may be.

Driving Behavior Changes

Now more than ever with the changing environment around driving behavior and volumes dramatically reduced due to the pandemic, the competency around “real time” is something that will become increasingly important across the board, as initial reports outline a potential spur in increased shopping growth rates. Consumers are starting to understand the benefits as well and indicated that they think telematics and driving behavior data are among the fairest ways to set a price for insurance; they will share data if they perceive a benefit.

Exchange models open that data to everyone. Imagine if you knew what to do with a consumer’s driving behavior data; you could offer a fully mature discount and could outprice the competition. The data can be pulled in from an exchange at the point of new business or at renewal. For many of your customers, you may already get their driving behavior data. But they might get a better offer from other insurers, and knowing more can give you a significant edge.

Where to go from here

We can call telematics the “newest old product” because the industry has been testing telematics-driven UBI programs for years, and, from our internal estimates, market adoption remains at approximately 5% of policies. What excites me, though, is that more and more insurers are acknowledging that it’s real and beginning to tap top tier data partners going forward.

See also: 3 Ways AI, Telematics Revolutionize Claims

Now that telematics data from connected vehicles is real and available at the point of quote and renewal, we can see how it becomes part of the fiber of all policies moving forward. And while the automotive OEM and auto insurance industries are going to continue to evolve separately, the opportunity an exchange creates is the ability to deliver the best customer experience with programs that focus on true value – a new lens on retention and loyalty and overall satisfaction of their shared customers.

Complementing experience is having a better understanding of driving behavior to provide a more complete picture of the individual, better risk assessment and better pricing, accordingly. Those insurers that are already adopting telematics data into their organizations and related workflows are on the edge of the market. App solutions make it easy, but connected vehicles and their shared language of data delivered through an exchange are the future. That’s the connected road ahead.

Is Insurtech a Game Changer? It Sure Is

Several years ago, property and casualty insurance executives were looking over their shoulders anxiously at a growing number of internet startups. Who were these scruffy people wearing black turtlenecks? Could they really “disintermediate” legacy providers that had been around for a century or more?

Since then, we’ve all evolved. By now, most brands know they have inherent strengths that are hard to dislodge. The startups have matured, too, and they clearly have something to offer the market. We’re now working with companies in both camps, helping them navigate this new normal, where collaboration, acquisition and competition are all plausible options.

Some insurers may think they’ve dodged a bullet. But insurtech’s threat is more stealthy, and no less powerful.

Insurtech: the new, new thing?

At this fall’s InsureTech Connect trade show, literally thousands of people descended on Las Vegas to show and examine the latest offerings, from core systems, predictive analytics tools and anything-as-a-service to pitches addressing distribution, pursuing unserved niche markets, offering comparative pricing and broker services and more.

In our recent report on the state of insurtech, we cautioned insurers to look beyond the many truly interesting offerings now coming to market. As impressive as these tools are, we urged decision makers to stay focused on the capabilities that make their companies unique.

See also: Has a New Insurtech Theme Emerged?  

What do insurers really do?

So, what are those capabilities? At holiday dinner tables, you may find yourself talking to a relative about what insurance is, and why it’s important. You may say something like, “We create products that help manage risk by sharing the possibility of individual loss with a larger pool of users.” This explanation held true for a long time, but,
with the rise of insurtech, it may not be the best way to look at your business.

That’s because many insurtech companies have emerged to manage the firehose of data that now shapes our world: the Internet of Things (IoT), wearable health devices, connected cars, artificial intelligence and more. Of course, there’s still a role for insurers when someone else captures and gets the insight from that data. But it’s a commodity role, driven by who is willing to write a policy to offset the risk at the lowest rate. There won’t be many winners, and the margins won’t be attractive.

Some insurers see their business as settling claims and handing out checks. But when someone else is using telematics to assess driving habits, or social media to understand lifestyle risks, who will be able to monetize this data? Increasingly, underwriting depends on getting deep into the data-driven weeds. If you’re not there, recognize that someone else will be.

The rise of outside money

There’s another factor shaping insurance today: the amount of private equity (PE) and venture capital (VC) money flooding into the industry. An industry as highly capitalized as insurance was bound to have external investors come knocking eventually. Now, they have.

To be blunt, many insurance systems are too costly and too slow. PE and VC firms have seen this, and they’ve said to themselves, “I don’t have to be perfect, and I know I can be more efficient than this. Even if I’m only a little bit better than the legacy players, I can make a very healthy profit.” It’s a form of arbitrage, and competition could soon get a lot tougher.

With the acceleration of insurtech and related technologies such as cloud and artificial intelligence, PE and VC firms have found a way in that doesn’t require them to show a century of stability. They can do very well developing an insurtech play for very specific aspects of the P&C value chain. Many traditional companies are finding themselves in a commoditized business, without the structure of a commodity manufacturer.

Finding your way to play

Some of the most exciting developments in technology are now reshaping the insurance industry. That spells new opportunities and new risks. With the rise of PE and VC funding, we now see competition emerging from companies with significant resources—and they’re privately held so they can be more patient investors.

See also: Advice for Aspiring Leaders in Insurtech  

Legacy insurance companies still have enormous advantages, and many opportunities to win. But most won’t be able to do it alone, and there are many examples of insurers that wasted time (and money) on the wrong insurtech acquisition or partnership. As the cycles of innovation and capital movement accelerate, you’ll need to be more focused than ever on the capabilities that make your company great. Insurtech is a game-changer.  Make sure you’re playing the right game.

Why AI IS All It’s Cracked Up to Be

A lot of people are talking about the promise of artificial intelligence (AI), and some say it’s too early to evaluate its long-term impact. I disagree. I believe we need to evaluate AI’s value now, because it’s already beginning to fundamentally change the way auto insurers do business.

A sweeping statement, perhaps, but there’s a lead-up to this discussion that is creating the perfect storm for P&C insurers.

First, insurer performance is challenging, and most every insurer I speak with is racing to identify ways to reduce expenses while continuing to offer desirable products to savvy consumers — consumers who expect insurance to be delivered and serviced just as seamlessly as their interactions with their favorite online retailer.

Next, vehicle complexity is making it extremely difficult to price risk, predict frequency (largely due to advanced driver assistance systems, or ADAS) and understand increasing repair costs, thanks to enhanced electronic content, such as the sensors in newer vehicles.

In this environment, AI can play a critical role, helping insurers bring expenses back in line while creating opportunities to deliver a better insurance experience for consumers. And, as vehicles become more connected, streaming more data, the role of AI will only grow.

AI Now

If you’re still not clear on what exactly AI is, it refers to programs that are capable of learning to make decisions more like humans. AI is at work all around us – when robots control other robots on the manufacturing line, intelligently automating the management and optimization of financial portfolios, detecting cancer using MRIs and machine vision and powering self-driving cars. In fact, AI is becoming so prevalent it’s expected to create $1.2 trillion in business value by the end of this year and $3.9 trillion by 2022.

AI in Insurance

It’s now our industry’s turn to put AI to work. What we’re seeing in other industries is now happening in claims. AI is being injected into key points in the claim process, helping to create value that can be seen (and felt) inside and outside the organization. Meaning, AI done right can yield improvements designed to enhance the experience of all stakeholders.

From an internal efficiencies perspective, consider AI’s impact on workflow challenges. As just one example, let’s look at the value of mobility and IoT, telematics in particular, because this is foundational to AI-driven improvements in processes. As you read on, think about all the existing processes and labor currently linked to your own auto claims area, because even the workflow that initiates a claim–in place for a hundred years–is now being changed, thanks to AI.

See also: Strategist’s Guide to Artificial Intelligence  

The New Claims Workflow

There is a new claims workflow taking hold right now, not some point in the future.

First, policyholders won’t call the insurer when they experience an accident—the insurer will contact him/her. This is because the insurer will apply AI to telematics data, setting an alert tagged to view the rate of change of the vehicle and determine in real time that there has been an accident.

Now apply AI-driven conversations via chatbots with customers at scale, in real time, to guide them through the claims process after that accident occurs. In our example, the chatbot asks the claimant for a photograph—an automated, back-end review determines suitability of the photograph, enabling the insurer to determine with high accuracy and in real time whether the vehicle is likely to be a total loss or repairable and advises the policyholder accordingly. Fast, transparent communication.

If the damage is repairable, the chatbot asks for additional facts and photos. The insurer detects location and severity of the damage by automatically comparing it against millions of collision variables and applying predictive, model-driven AI. Heat maps are used as visible illustrations of the damage, building credibility with your policyholder.

The internal workflow changes further when virtual inspections are powered by AI. Remote appraisers can be given photos, heat maps and even a guided estimating tool, reducing time and effort in the field and yielding higher accuracy and productivity, processing 15 or more estimates per day versus four to five estimates in a pre-AI, field inspection world. Once the estimate is written, information gleaned from the photographs is fused with insights gleaned from CCC’s wealth of estimating experience to determine if the estimate is in line with insurer guidelines. The appraiser views the pictures and, applying AI, builds out the estimate with interactive prompts to improve it.

Thanks to AI, the policyholder is given an estimate in significantly less time than is possible today. AI also fuels communication that is more transparent and consistent with consumer expectations. When a vehicle is repairable, the policyholder doesn’t need to wait impatiently for days while the claims and repair process slowly unfolds in ways they don’t know about or understand. Instead, a consumer has access to a host of chatbot and SMS technology, where messages communicate the necessary steps to resolve the claim. Similar to how we book a restaurant reservation, the policyholder can schedule a repair shop appointment; and like an airline that can notify us of flight status, repair status updates have become standard practice for shops.

Through the use of AI, services can be dispatched and intelligently routed to the repair shop of choice—or the salvage yard in the case of a total loss, saving time and money on additional tows and storage fees. From the policyholders’ perspective, the insurer continues to prove that it has their best interests at heart, building trust and loyalty at a pivotal time in the relationship.

In other words, an experience is built around AI, putting it to work to benefit the consumer. And, the same thing is happening for the estimator.

On the casualty side, insurers handling first- and third-party claims can leverage AI to help inform investigations and increase loss cost management accuracy. For example, AI can detect the principal direction of force and the delta V to predict the likely physical injuries and outcomes of the vehicle’s occupants. There are early indications that integrating this data for analytics and intelligence purposes can improve claims outcomes, both by qualifying injury causation and revealing whether certain injuries are consistent with the facts of the accident.

See also: Why AI-Assisted Selling Is the Future  

AI Next

What I’ve just described is the tip of the iceberg. We are at the tipping point. Connected cars will drive another wave of claims innovation. According to IHS Markit, worldwide sales of connected cars will reach 72.5 million units in 2023, up from 24 million units in 2015. That means, in just over eight years, almost 69% of passenger vehicles sold will be exchanging data with external sources.

What does that mean for us?

If I’m looking into my crystal ball, here’s what I see:

When there’s an accident, the amount of instantaneous information available to us will probably be 10 times what it is today. We won’t need policyholders to take the photographs I mentioned earlier. With telematics data, we will have all of the information that is knowable about an accident event, which makes the AI even faster and more accurate and claims management and related outcomes even that much better.

If the car isn’t that safe, it will be picked up by a self-driving tow truck and taken to the shop while another self-driving car will come pick up the policyholder. By the way, at the shop, no one’s going to have to order any parts; the parts will be ordered within minutes, maybe even seconds after the accident.

From an internal and external perspective, there is no downside to embracing AI’s promise: reduced claims costs, increased customer satisfaction and improved business outcomes – today and into the future. The value is there; the time is now.

Car Makers, Insurers: Becoming Partners?

When “Car and Driver” magazine debuted more than 60 years ago (originally titled Sports Cars Illustrated), nobody could have envisioned the approaching changes that would transform life as we knew it – including all things automotive and consumer. Today, the expression “car and driver” suggests a completely different meaning as automobiles are becoming “driven” by software and technology and their owners are becoming passengers – and increasingly we are riding in vehicles we don’t even own but rather share or rent.

But while we await our future, current innovations in vehicle and consumer technologies have already emerged to create a transition period full of complex challenges and issues accompanied by potentially significant opportunities for all participants. While much attention is being paid to the emergence of telematics and the connected car, and seemingly endless amounts of investment capital are flowing to the many innovative and promising startups sprouting in this fertile global environment, something even more consequential is also beginning to evolve. Auto insurers and auto makers – once basically adversaries – are beginning to cooperate around many of the related opportunities.  

See also: 3 Technology Trends Worth Watching  

These two industries, which serve and share a common customer base, have traditionally been wary of one another because they had so many conflicting interests. Carriers insure the people who drive the cars that OEMs make, and, when accidents inevitably occur, liability is frequently brought into question to protect the interests of one from the other. In addition, franchised new car dealers, upon whose success OEMs depend for sales and vehicle distribution, earn significant revenues from selling a variety of related products and services – including warranties and insurance, another area of potential conflict. Finally, when insured vehicles end up in collision repair shops as a result of accidents (which happens more than 20 million times a year), insurance carriers do their best to manage repair costs by encouraging these shops to find and use less expensive parts, which costs OEMs and their franchised new car dealers significant parts sales revenues. And, at a higher level, insurers and OEMs value and fiercely protect their customer relationships and have no interest in sharing them with others.   

However, these dynamics are quickly changing as new mobile technologies are rapidly transforming consumer behavior and expectations and as new connected car and automated driver assist technologies begin to present significant new challenges as well as exciting opportunities to both auto insurers and OEMs. It is far from a given that today’s auto market share leaders will enjoy similar shares of future autonomous vehicle sales, and it is equally uncertain as to by whom and how these vehicles will be insured.

Tesla is positioning itself to do both. And so the ancient proverb that “the enemy of my enemy is my friend” seems to apply very well here. Evidence of insurer/OEM partnerships, both direct and indirect, is plentiful and growing daily.

Insurer/OEM connected car partnerships date back to as early as 2012 and include State Farm/Ford, Progressive/GM OnStar, Allstate/GM OnStar and Nissan/Liberty Mutual. In 2015, Ford conducted a “Data Driven Insurance” pilot program that provided participating drivers with their driver history for use in obtaining auto insurance. In 2017, GM OnStar began offering its subscribers 10% discounts on auto insurance from participating carriers including National General, 21st Century, Liberty Mutual, State Farm and Plymouth Rock.  

And data and analytics information providers Verisk and LexisNexis Risk Solutions, which collect data and analytics solutions for use by the insurance industry, have both recently launched telematics data exchanges with OEM participants including GM and Mitsubishi. Consenting connected-car owners have the option to contribute their driving data and seamlessly take advantage of insurers’ usage-based insurance (UBI) programs designed to reward them for how they drive.

Other innovative telematics data models include BMW CarData, which allows owners to share customized data with pre-approved third-parties such as insurers, auto repair shops and other automotive service providers. Drivers can obtain custom insurance coverage based on their exact number of miles driven while repair shops could automatically order parts in advance of service appointments.

For carriers, existing data pools and analytics tools will become less useful than real-time data streaming from connected cars coupled with increased proficiency in predictive modeling and machine learning. OEM/insurer partnerships can enable both parties to share the costs and co-develop big data mining technologies and advanced analytics methodologies to benefit their respective businesses. Insurers can improve underwriting and claims processes while OEMs can improve vehicle safety, design and performance.

Data provided by connected-car devices could be used to initiate claims processing, order damaged parts, triage required collision repair and manage other third-party services (e.g. towing, rental, appraisal) and record accident dynamics as well as occupant placement. OEM/insurer partnerships sharing this data could lead to better claims service and satisfaction and more reliable injury claim evaluation. OEMs could use this data to improve vehicle and occupant safety and could ensure that repairs are performed at properly certified collision repairers and that appropriate parts are used in the repair.

OEMs and insurers can partner to offer customers innovative customer experiences, becoming primary points of contact for risk prevention and new hybrid insurance products as well as dealer parts, service and sales opportunities. New revenue sources for both parties could include Intelligent GPS for theft recovery, real-time notifications of traffic and other travel inconveniences, intelligent parking, location-based services, safety and remote maintenance services. Cost duplication from currently overlapping services such as roadside assistance and towing could be eliminated by single-sourcing such services.

See also: The Evolution in Self-Driving Vehicles  

To be sure, other telematics data business models have emerged that could threaten OEM/insurer partnerships.  In June 2017, BMW and IBM announced the integration of the BMW CarData network with an IBM cloud computing platform that could help as many as 8.5 million German drivers who grant permission to diagnose and repair problems save on car insurance, and take advantage of other third-party services. IBM can also collect data from other OEMs over time, and BMW plans to expand the program to other markets. And technology companies, including Automatics Labs and Otonomo, are seeking consumer consent to sell data through their exchange platforms.

While we await the day that self-driving vehicles dominate our roadways – which will no doubt make many of these driver data initiatives basically irrelevant – we have the most pragmatic of all reasons why OEM/insurer partnerships make sense. Participants can mitigate their risk and reduce their investments in these costly but still relatively short-term opportunities as they position their companies for the as-yet-undefined future of transportation and insurance.

Telematics Has 2 Key Lessons for Insurtechs

Connected insurance represents a new paradigm for the insurance business, an approach that fits with the mainstream Gen C, where “C” means connectivity. This novel insurance approach is based on the use of sensors that collect and send data related to the status of an insured risk and on data usage along the insurance value chain.

Auto telematics represents the most mature insurtech use case, as it has already passed the test and experimentation phase. It is currently being used as an instrument for daily work within motor insurance business units. In this domain, Italy is an international best-practice example: Here, you can find at the end of 2015 half of the 10 million connected cars in the world have a telematics insurance policy. According to the SSI’s survey, more than 70% of Italians show a positive attitude toward motor telematics insurance solutions. According to the Istituto per la Vigilanza sulle Assicurazioni (IVASS), about 26 different insurance companies present in Italy are selling the product, with a 19% penetration rate out of all privately owned insured automobiles in the last quarter of 2016. Based on the information presented by the European Connected Insurance Observatory, the Italian market surpassed 6.3 million telematics policies at the end of 2016.

See also: Telematics: Moving Out of the Dark Ages?

Based on this data, we can identify three main benefits connected insurance provides to the insurance sector:

  1. Frequency of interaction, enhancing proximity with the customer while creating new customer experiences and offering additional services
  2. Bolstering the bottom line, through specialization,
  3. Creating and consolidating knowledge about the risks and the customer base.

The insurance companies are adopting this new connected insurance paradigm for other insurance personal lines. The sum of insurance approaches based on IoT represents an extraordinary opportunity for getting the insurance sector to connect with its clients and their risks.

The insurers can gradually assume a new and active role when dealing with their clients—from liquidation to prevention.

It’s possible to envision an adoption track of this innovation by the other business lines that are very similar to that of auto telematics, which would include:

  1. An initial incubation phase when the first pilots are being put into action to identify use cases that are coherent with business goals;
  2. A second exploratory phase that will see the first rollout by the pioneering insurance companies alongside a progressive expansion of the testing to include other players with a “me, too” approach;
  3. A learning phase in which the approach is adopted by many insurers (with low penetration on volumes) but some players start to fully achieve the potential by using a customized approach and pushing the product commercially (increasing penetration on volumes);
  4. Finally, the growth phase, where the solution is already diffused and all players give it a major commercial push. After having passed through all the previous steps in a period spanning almost 15 years, the Italian auto telematics market is currently entering this growth phase.

The telematics experience teaches us two key lessons regarding the insurance sector:

  1. Transformation does not happen overnight. Before becoming a relevant and pervasive phenomenon within the strategy of some of the big Italian companies, telematics needed years of experimentation, followed by a “me, too” approach from competitors and several different use cases to reach the current status of adoption growth.
  2. The big companies can be protagonists of this transformation. By adding services based on black box data, telematics has allowed for improvements in the insurance value chain. Recent international studies show how this trend of insurance policies integrated with service platforms is being requested by clients. The studies also show that companies, thanks to their trustworthy images, are considered credible entities in the eyes of the clients and, thus, valid to players who can provide these services. If insurance companies do not take advantage of this opportunity, some other player will. For example, Metromile is an insurtech startup and a digital distributor that has created a telematics auto insurance policy with an insurance company that played the role of underwriter. After having gathered nearly $200 million in funding, Metromile is now buying Mosaic Insurance and is officially the first insurtech startup to buy a traditional insurance company. This supports the forecast about “software is eating the world”— even in the insurance sector.

See also: Effective Strategies for Buying Auto Insurance

How can other markets capitalize on the telematics experience and create their own approach?