Tag Archives: Discovery

Maybe Even Diabetes Can Be Insured

The World Health Organization has published a five-year strategic plan focused on 10 major threats to global health in 2019, among which there are noncommunicable diseases, such as diabetes, cancer and heart disease – collectively responsible for over 70% of all deaths worldwide. Through the plan, the WHO wants to try to ensure that 1 billion more people will benefit from access to universal health coverage, 1 billion more people are protected from health emergencies and 1 billion more people enjoy better health and well-being. It’s a very optimistic goal, and different types of solutions are required; all means available should be employed.

Where do insurers come in? They are part of the healthcare system and could do more to contribute to global health. Though it may seem perhaps altruistic to associate insurers with such a noble scope, the reality is that they, insurers, would also benefit.

Forward-looking companies have understood this opportunity, so there are examples of insurers that have started to use the “Insurer as Partner” approach, which implies an active role in prevention rather than just being reactive and paying claims when an undesirable event occurs. This new potential role of the insurer has been made possible, in great part, by what we now call “connected insurance,” which encompasses IoT (Internet of Things), wearables and other monitoring devices. The re-shaping of the insurance industry has already begun, and it will continue based on new technologies.

Connected health insurance can become profitable for insurers as it allows measurement of the risk for a specific client and thus allows the presentation of an improved, better-priced value proposition that may also improve general health. The insurance company can’t possibly make it on its own and will have to seek partners from both the technological innovation sphere and medical providers, keeping in mind that its role in the health system is changing from “payer” to “pivot.”

Discovery’s Vitality Program

To better grasp the actual benefits for clients and not just for insurers that adopt such an innovative approach, let’s look at the South African insurance player Discovery, which can be considered the benchmark when it comes to engaging members and improving their quality of life. Its Vitality program has created a system that not only raises the loyalty of customers but improves their lifestyle and overall health.

Discovery’s Vitality uses an “early warning” mechanism that can anticipate serious health problems and more expensive claims. It does so by using connected devices like the smartwatch. According to Discovery, Vitality Gold status members with heart disease have 41% lower risk claims than members with no Vitality membership. Vitality Gold members living with diabetes have 50% lower risk claims.

See also: Security of Medical Devices Needs Care  

Another claim coming from a presentation by Discovery Vitality at DIA Amsterdam 2018 deserves our attention: There is an 18% reduction of hospital and chronic claim costs for the batch of Vitality members who use the Vitality Active Rewards (VAR) alongside the Apple Watch, compared with the group of insured who do not use an Apple Watch. VAR is a smartphone application based on fitness points, which is designed to encourage Vitality members to increase their activity by setting weekly personalized physical activity goals – and then rewarding users for achieving them. (Discovery specifies that its data is based on a cross-sectional view of the relative claims experience, and it is premature to show the improvement over time given the lower frequency of health claim events.)

Discovery says that Apple Watch owners enrolled in the program are 35% more active than prior to getting the watch. Since the VAR system was launched, there has been a 24% increase in physical-activity days and a 9% increase in meeting higher exercise targets. The data is telling, and the implications for ensuring healthy lives and promoting wellbeing are significant. Seen from this point of view, the transition to a “prevention-centered” approach is a pragmatic decision for insurers because, in time, the portfolio tends to change its structure, passing from a majority of “sick” clients to a majority of relatively “in good health” clients.

ICS Maugeri’s Mosaic case study

Let’s look now at a more specific issue within the spectrum of uninsurable diseases, that is diabetes. Diabetes is a chronic disease that occurs either when the pancreas does not produce enough insulin or when the body cannot effectively use the insulin it produces. In 2014, 8,5% of adults aged 18 years and older had diabetes. In 2016, diabetes was the direct cause of 1,6 million deaths, and in 2012 high blood glucose was the cause of another 2,2 million deaths. It is estimated that the number of diabetic patients worldwide will be 629 million by 2045.

Diabetic patients have a high risk to develop severe complications generated by the evolution of the pathology, such as peripheral neuropathy, retinopathy, nephropathy and cardiovascular diseases. It is well-known that insurers either do not cover diabetic patients or, if they do, require a high premium. This is due to the difficulty to measure the probability of the occurrence of risks associated with these clients. Therefore, the insurance sector is leaving uncovered a market that is becoming more and more relevant.

ICS Maugeri, a major group of hospitals specializing in rehabilitation medicine, has developed, in partnership with the University of Pavia, an instrument called Mosaic aimed at improving the clinical management of patients affected by diabetes mellitus type 2 (T2DM) that can calculate the risk of developing complications in different time scenarios. Mosaic uses AI and machine learning that is based on algorithms able to learn patterns and decision rules from data. Based on the results expressed in one of their published research papers, the team has been able “to predict the onset of complications (retinopathy, neuropathy, nephropathy) at different time scenarios: at three, five and seven years from the first visit. The final models are thus able to provide up to 84% accuracy in predicting the probability for a diabetic to develop the three main complications and are easy to apply in clinical practice.

In insurers’ terms, this shows that risk associated with diabetes can be estimated; furthermore, given that clinical evidences show that a proper management of the diabetic patient (intensive pharmacological treatment etc.) can lead to a significant reduction in the possibility of developing complications, the risk itself can be managed and reduced. The question is: How can insurers make sure that diabetic patients follow the required therapeutic path? It’s a difficult job. Diabetic patients are required to follow a rigorous clinical, diagnostic and therapeutic path to manage and control their pathology and try to limit or slow the consequences of this chronic disease. This path involves periodic medical checks and diagnostic tests as well as continuous and intensive drug therapies, requiring significant effort for patients and their caregivers. Most of the time, the scheduling of such periodic checks must be autonomously managed by the patient, resulting in a progressive reduction of adherence to the required clinical paths.

Within the Mosaic project, the patient is monitored with the help of wearables and telemedicine; this allows the team to (i) personalize and update pharmacological treatments, (ii) identify and update the diagnostic path to be performed to monitor and reduce the risk of complications and (iii) identify on-time criticalities that may require timely investigations. Therefore, this approach allows a significant risk control and, potentially, risk reduction, allowing the insurer to update the premium yearly.

See also: An Easy Way Forward on Health Costs  

How do Discovery Vitality and Mosaic fit in together?

Discovery Vitality uses gamification, reward systems and tracking devices to steer clients toward a healthier life style. Imagine if Vitality would be integrated with Mosaic’s technology for diabetes patients. This would mean that suddenly diabetics would become insurable, and the client base would increase.

Vitality has already proven that a reward-based system can help improve behavior, so probably it would also work as an additional incentive for diabetics in keeping them effectively engaged with their prescribed treatment. Taking for granted that diabetics will follow a program step by step and change their behavior toward a desired goal is not something anyone should do. Even if the real stake for diabetics is their own life expectancy, which should be motivation enough, the reward element could be a good and fun extra incentive for reaching health goals.

As estimated costs with lifestyle-related conditions (including diabetes) will be 47 trillion by 2030, insurers, the healthcare systems, clinical providers and patients could all benefit in some way from such a program. We would like to see this implemented in the short term at a larger scale than the test made by Mosaic, and it would also be interesting to look at how this approach could be extended to other chronic diseases.

Article based on the chapter written by Andrea Silvello and Alessandro Procaccini, “Connected Insurance Reshaping the Health Insurance Industry,” Smart Healthcare, Intechopen, 2019, DOI: 10.5772/intechopen.85123.

UBI Is Not Usage-Based–Sorry!

Usage-based pricing is a fascinating topic for insurers. A technology that allows persistent monitoring of risk exposure during the coverage period could potentially enable insurers to price each risk at the best rate.

The potential, however, is not the reality.

In 2017, 14 million policies sent telematics data to insurers around the world, of which 4.4 million were in the U.S market, based on an estimate by the IoT Insurance Observatory, an insurance think tank that has aggregated almost 50 insurers, reinsurers and tech players between North America and Europe. (In the U.S., there were a further 3.6 million policies that are still active and commonly defined as telematics but that in the past had a dongle only and didn’t send any data to insurers last year.)

However, less than 9% of the global insurance telematics policies were characterized by usage-based pricing, which is a mechanism that charges the policyholders for the current period of coverage based on how they behave (mileage or driving behavior) during this period.

Instead, the vast majority of the telematics policies bought by customers around the world today have a defined up-front price for the current policy term. Moreover, the telematics data registered during the policy period does not affect this price in any way, and is used only for proposing a renewal price at the end of the policy. So, these policies are not usage-based because at the beginning of each policy term the customers are sure about the amount they are going to pay for the policy, regardless of their behavior during the months of coverage.

These existing implementations of telematics-based pricing are somewhat validated from consumer perceptions toward insurance. In a survey of 1,046 U.S. consumers, the Casualty Actuarial Society Insurance On-Demand Working Party has addressed and demystified some of the behavioral economics assumptions on the insurance products. The research showed that only 32% of consumers reviewed their personal lines (auto and home) coverage more than once per year. Furthermore, 89% of consumers said they would rather pay a single, stable price per year compared with paying per usage without a certainty of total price. Usage-based auto insurance, across the entire on-demand category studied by the working group, is attractive to people penalized by traditional insurance products, that is, consumers with low usage who would otherwise have to pay for more coverage than they need.

Potential and Success Stories

The usage-based approach persistently monitors the policyholders and charges (potentially) each customer a rate commensurate with actual exposure, minimizing the premium leakage in each coverage period. The resulting minimized earning volatility from usage-based pricing allows insurers to increase the leverage and through this to improve investment return and the return on equity of the company. This approach also allows for increased retention of good risks, at any pricing level, which are penalized by competitors with less accurate pricing mechanisms. The quality of the portfolio is improved (with more profitable customers) at each renewal.

The resulting lower volatility from usage-based pricing and better quality of the portfolio over time would also enable insurers to negotiate lower reinsurance costs.

But while usage-based insurance could theoretically be a profitable option for insurers, the problem seems to be the lack of customer demand for an insurance product where there isn’t a defined up-front price for all the entire coverage period..

See also: Rethinking the Case for UBI in Auto

Newcomers to the insurance market are bringing a different perspective to the problem, recognizing that small clusters of drivers who have been heavily penalized by the current insurance rates—such as extremely low-mileage drivers, or extremely safe drivers without a credit score—could be enough to start a niche business. There are a few success stories of insurtech startups, such as Insure The Box and Metromile, which have been able to build portfolios around 100,000 policies and relevant company evaluations within six to seven years.

Driving Scores at the Underwriting Stage

One way to combat the lack of market fit that has affected the usage-based adoption could be to use a driving score at the underwriting stage. This way, insurers will make an up-front quotation by using—together with traditional data—the driving data.

The value created through this approach is clear and similar to experiences the sector has had integrating new risk factors (e.g. credit scoring) in pre-existing risk models. This telematics-enhanced risk model enables more accurate pricing. This, in turn, allows insurers to generate favorable selection by attracting the best risks for each pricing level (leaving the worst to the competitors). Through the creation of smaller and more homogeneous clusters of clients, this approach even reduces premium leakage, reducing the volatility. And, if the driving score is used at each renewal, there is a chance of improving portfolio quality over time (at any pricing level), with insurers using driving scores for underwriting, benefiting from retention of the most profitable customers–those who are penalized by competitors with less accurate pricing mechanisms.

The ROI of this approach is extremely positive, but the current scenario for obtaining the customer driving score seems very different from the scenario we have known for the credit score. The credit score (or the granular data necessary to calculate it) is available on the entire customer base and certified by reliable third parties, so each insurer can gather this data any time a customer requests a quotation via an agent, a broker, a call center or even online. Moreover, anyone who doesn’t have a credit score is considered a nonstandard risk. So, the concretization of the driving score dream requires the availability and reliability of third-party data for the insurers and, most importantly, the creation of frictionless purchasing processes for the clients.

Data exchanges, which bring OEM data to insurers, have been present in the U.S. customer market for a few years, but because there are many points of friction throughout OEM funnels, they still represent only 2% of the U.S. telematics insurance portfolio. This customer fatigue is due to the need to opt in to request a quotation. Eligibility for the opt-in comes in a moment when he is not shopping around for insurance coverage (a few months after the purchase of the new car). The quotations, which are done with anonymized data, are only indicative, so the customer needs to add data later to receive the real proposal.

Try Before You Buy

A different way to concretize the wish to access a driving score any time an insurance price quotation is calculated is by using a try-before-you-buy app. Given the current level of smartphone penetration, such an app likely provides an easier way to address a large part of the market than with the data exchanges and may also reduce customer frictions. As insurtech carrier Root is currently doing, an insurer can ask a prospect to download an app on his smartphone, calculate the driving score through collected data and, after a while, calculate the quotation incorporating the customer’s driving score. Using this approach, this less-than-two-year-old auto carrier startup wrote 1.5 times more premium than the more-talked-about carrier Lemonade. (Both are insurtech carriers, although Lemonade is writing renters insurance, and Root is writing auto). Root even entered in the insurtech unicorn club in August, thanks to a $100 million round of funding raising the valuation to $1 billion.

Tailored renewal price

As mentioned, 90% of the current global telematics policies only use the driving data for tailoring the renewal price to the customers after having monitored them for a few months (rollover approach) or for the entire coverage period (leave-in approach).

Are insurers achieving any economic value through this pricing approach?

They can increase the retention of the most profitable risks at each pricing level by providing a discount at renewal. However, this additional discount reduces the profitability of these policyholders. So the chance to create some value through this “discounted retention” is linked to the presence of a high-level churn rate. If surcharges to the worst risks at each pricing level are added, insurers will have the opportunity at renewal to partially reduce the premium leakage they have identified on these risks, or push some of them toward competitors.

The accompanying chart (right side) summarizes these pricing thoughts: The expected ROI of the “discount at renewal” is definitely lower than the driving score scenario—it structurally misses the ability to have a positive up-front selection by attracting the better risks at each pricing level—but it is positive if surcharges are added.

The IoT Insurance Observatory has found that a large portion of the policies using driving data for tailoring renewal prices have not resulted in any bad driver penalties.

So, are these telematics portfolios destroying value instead of creating it?

The reality is that there is value created on these portfolios, but the value is not tied to pricing. And some of the pricing approaches are even reducing that value.

First, there are many examples of the risk self-selection impact of all the telematics-based products around the world. Even if two customers seem to be equal based on their characteristics, the one who accepts the telematics product has a lower probability of generating a loss. The stronger the monitoring message on the product storytelling, the higher the self-selection effect. The most statistically robust study is on the Italian auto insurance market, where this risk self-selection effect has accounted for 20% of the claim frequency. In this market, telematics products currently represent more than one-fifth of the personal lines auto insurance business, and the storytelling of the product is hugely focused on monitoring and customer support at the moment of a crash.

Other than risk self-selection, three other telematics-based use cases have been exploited by insurers.

Some international insurers have reinvented their claims processes through telematics data: Their new paradigm is fact-based, digital and real-time. Insurers such as UnipolSai have introduced tools for their claim handlers that allow a quicker and more precise crash responsibility identification and have been providing precious insights to support the activity of all the actors involved in the claim supply chain (both loss adjusters and doctors).

See also: Is Usage-Based Insurance a Bubble?  

A second well-demonstrated telematics use case is the change of driver behavior. VitalityDrive introduced by the South African insurance company Discovery Insure is the first insurance telematics product entirely focused on promoting safer behavior. All the product features—from gas cash-back (up to 50% of fuel spending per month) to active rewards through the app (including coffee, smoothies and car wash vouchers)—are contributing to the risk reduction of the book of business and to increased retention of the best risks.

Both the Italian and South African experiences have even been characterized by the insurers’ ability of enhancing the insurance value proposition by adding telematics-based services bundled to the auto insurance coverage. The fees paid by customers for these services almost offset all the costs of the telematics services on the insurers’ income statements

Based on the experience of the IoT Insurance Observatory, global insurance telematics best practices have generated more value through these four use cases than through pricing as of today. So, the sum of the self-selection effect, the claim cost reduction and the economic impact of changes of behavior allows an insurer to provide an important up-front discount at the same level for all the new telematics-based policyholders.

This relevant level of up-front discount — 20% or more — has been able to drive the adoption (overcoming any eventual customer privacy skepticism) because it fits with the customer desire to save money, contrasting the low adoption rates generated for more than a decade in the U.S. where up-front discount offers are typically only 5%.

The discount should be maintained, on average, at the same level at the renewal stage. Moreover, an additional economic value can be generated—at each pricing level—by providing additional discounts to the best policyholders and reducing the discount to the worst ones.

This is what the international best practices are doing today.

UBI Has Failed, but Telematics…Wow!

Insurance telematics has been out there for more than 20 years. Many insurers have tried to play with the technology, but few have succeeded in using the data available from connected telematics devices. The potential of this technology was misunderstood, and best practices have remained almost unknown, as it was not common in the insurance sector to look for innovation in other geographies, such as Italy, where progress has been made.

But the insurance sector is being overtaken by a desire to change, and it’s becoming more common to see innovation scouting taking place on an international level. In the last two years, billions of dollars have been invested in insurance startups; innovation labs and accelerators have popped up; and many insurance carriers have created internal innovation units.

On the other hand, I’m starting to hear a new wave of disillusion about the lack of traction of insurtech initiatives, the failure of some of them, or insurtech startups radically changing from their original business models.

In a world that tends toward hyperconnectivity and the infiltration of technology into all aspects of society, I’m firmly convinced all insurance players will be insurtech—meaning they all will be organizations where technology will prevail as the key enabler for the achievement of strategic goals.

See also: Telematics Has 2 Key Lessons for Insurtechs  

Starting from this premise, I’d like to focus on two main points:

  1. The ability of the insurance sector to innovate is incredibly higher than the image commonly perceived.
  2. While not all insurtech innovations will work, a few of them will change the sector.

In support of the first point, consider the trajectory of digital insurance distribution. The German Post Office first experimented with remote insurance sales at the beginning of the 1980s in Berlin and Düsseldorf using Bildschirmtext (data transmitted through the telephone network and the content displayed on a television set). Almost 60% of auto insurance coverage is now sold online in the U.K., and comparison websites are the “normal” way to purchase an auto insurance policy. In few other sectors is one able to see comparable penetration of digital distribution.

In the health insurance sector, the South African insurer Discovery demonstrates incredible innovation, as well. Over the last 20 years, the insurer has introduced new ways to improve policyholders’ lives using connected fitness devices to track healthy behaviors, generate discounts and deliver incentives for activities supporting wellness and even healthy food purchases. Discovery has been able to replicate this “Vitality” model in different geographies and different business lines and to exploit more and more usage of connected devices in its model each month. Vitalitydrive by Discovery rewards drivers for driving knowledge, driving course attendance and behavior on the road with as much as 50% back on fuel purchases at certain stations.

More than 12 months ago, I published my four Ps approach for selecting the most interesting initiatives within the crowded insurtech space. I believe initiatives will have a better chance to win if they can improve:

  • Productivity (generate more sales).
  • Profitability (improve loss or cost ratios).
  • Proximity (improve customer relationships through numerous customer touchpoints).
  • Persistency (account retention, renewal rate increase).

Those insurtech initiatives will make the insurance sector stronger and more able to achieve its strategic goal: to protect the way people live.

One trend able to generate a concrete impact on all four Ps is connected insurance. This is a broad set of solutions based on sensors for collecting data on the state of an insured risk and on telematics for remote transmission and management of the collected data.

In a survey of ACORD members by the North American Connected Insurance Observatory, 93% of respondents stated this trend will be relevant for the North American insurance sector. It’s easy to understand why. We live in a time of connected cars, connected homes and connected health. Today, there is more than one connected device per person in the world, and by some estimates the figure will reach seven devices per person by 2020. (Cisco Internet Business Solutions Group, “The Internet of Things: How the Next Evolution of The Internet Is Changing Everything,” April 2011, estimates seven per person; AIG/CEA, 2015, estimates five per person.) Others put the number at 50 devices for a family of four by 2022, up from 10 in 2014. The insurance sector cannot stop this trend; it can only figure out how to deal with it.

Moving to the concrete insurance usage of connected devices, the common perception of UBI is not positive at all. This is the current mood after years of exploring the usage of dongles within customer acquisition use cases, where the customer installs a piece of hardware in the car for a few months and the insurer proposes a discount based on the analysis of trips. This partially (only for a few months) connected car approach is based on the usage of data to identify good drivers, with the aim of keeping them as clients through a competitive price offer. In 2015, around 3.3 million cars in the U.S. sent in data to an insurance company in some way, representing less than 1.5% of the market.

In contrast, another market used telematics in a completely different way—and it succeeded. Almost 20% of auto insurance policies sold and renewed in the last quarter of 2016 in Italy had a telematics device provided by an insurer based on the IVASS data. The European Connected Insurance Observatory—the European chapter of the insurance think tank I created, consisting of more than 30 European insurers, reinsurers and tech players with an active presence in the discussion from their Italian branches—estimated that 6.3 million Italian customers had a telematics policy at the end of 2016.

Some insurers in this market were able to use the telematics data to create value and share it with customers. The most successful product with the largest traction is based on three elements:

  • A hardware device provided by the insurer with auto liability coverage, self-installed by the customer on the battery under the car’s hood.
  • A 20% upfront flat discount on annual auto liability premium.
  • A suite of services that goes beyond support in the case of a crash to many other different use cases—stolen vehicle recovery, car finder, weather alerts—with a service fee around €50 charged to the customer.

This approach is not introducing any usage-based insurance elements but is an approach clearly able to satisfy the most relevant needs of a customer:

  • Saving money on a compulsory product. Research shows that pricing is relevant in customer choice.
  • Receiving support and convenience at the moment of truth—the claims moment. Insurers are providing a better customer experience after a crash using the telematics data. Just think of how much information can be gathered directly from telematics data without having to question the client.
  • Receiving services other than insurance. That’s something roughly 60% of insurance customers look forward to and value, according to Bain’s research on net promoter scores published last year.

Let’s analyze this approach from an economic perspective:

  • The fee to the customer is close to the annual technology cost for the hardware and services. The €50 mentioned above represents more than 5% of the insurance premium for the risky clients paying an annual premium higher than €1,000. This cluster represents less than 5% of the Italian telematics market. The fee is more than 10% of the premium for the customers paying less than €400. This cluster represents more than 40% of the Italian telematics market.
  • The product is a constant, daily presence in the car, with the driver, with no possibility of turning it off. While the product ensures support in case of a crash, it is also a tremendous deterrent for anyone tempted to make a fraudulent claim, as well as for drivers engaging in risky behavior otherwise hidden from the insurer.
  • The telematics portfolio has shown on average 20% lower claims frequency on a risk-adjusted basis than the non-telematics portfolio, based on the analysis done by the Italian Association of Insurers.
  • Insurer best practices have achieved additional savings on the average cost of claims by introducing a claims management approach as soon as a crash happens and by using the objective reconstruction of the crash dynamic to support the claim handler’s decisions.
  • A suite of telematics services is delivered to the customer, along with a 25% upfront discount on the auto liability premium.

So, best practices allowed carriers to maximize return on investment in telematics technology by using the same data coming from the black box to activate three different value creation levers: value-added services paid for by the customer, risk selection and loss control. The value created was shared with the customer through the upfront discount. The successful players obtained a telematics penetration larger than 20% and experienced continuous growth of their telematics portfolios.

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

These insurers were able to orchestrate an ecosystem of partners to deliver a “customer-centric” auto insurance value proposition, satisfying the three main needs of customers—or at least those of “good” customers. Compared with many approaches currently being experimented with in different business lines around the world, where the insurance value proposition is simply enlarged by adding some services, this insurtech approach is also leveraging the insurers’ unique competitive advantage—the insurance technical P&L—to create a virtuous value-sharing mechanism based on the telematics data.

The story of the Italian auto telematics market shows how insurtech adoption will make the insurance sector stronger and better able to achieve its strategic goals: to protect the ways in which people live and organizations work

This article originally appeared on Carrier Management.

Secrets InsurTechs Need to Learn

The insurance sector is becoming more innovative. Various initiatives and projects launched around the globe are proof of that — from the classic “call for ideas” and corporate venture capital to innovation labs and accelerators that involve the largest insurance companies. According to CB Insights, InsurTech — which involves rethinking one or more steps of the insurance value chain through the use of technology — received $650 million in funding in the first quarter of 2016, and the number of transactions more than doubled compared with the same period in 2015.

The Italian insurance sector represents an interesting case history about InsurTech. Italy has the most advanced experience in combining the car insurance contract with hardware (the black box) and using that data throughout the insurance value chain. According to Bain Telematics, Connected Insurance & Innovation Observatory — a think tank Bain & Company developed with ANIA, AIBA and other insurance and non-insurance partners to help spread innovation culture in the insurance sector — telematics penetration reached 16% of all cars insured in Italy by the last quarter of 2015.

See also: The Future of Telematics is… Italy

In Italy, this type of approach is already mainstream — in contrast with other countries, where it is still a niche-value proposition. By looking at the Italian best practices, one can identify certain critical success factors. The most important element is telematics’ capacity to improve the insurance bottom line; a significant self-selection effect exists on customer acquisition and on material savings related to claims settlement (provided that adequate processes are in place and use the telematics information). The second aspect is represented by the benefit of introducing value-added services around the driver journey. The key element for both the client and the distributor is the partial kickback of the value generated by the telematics approach on the insurance bottom line to both the client (via a discount) and the distributor (via additional fees).

The current discussion of how telematics will evolve focuses on gamification and reward mechanisms  mechanisms to manage client engagement and retrocession prizes other than insurance premium discounts. For example, in the U.S., Allstate has adopted a score- and prize-based system related to driving behavior. The best practice internationally is undoubtedly Vitalitydrive, the approach through which Discovery (South Africa) has created a motor-telematics policy based on driving behavior. In this case, the cash-back incentive for gasoline bought from partner gas stops replaces the premium discount.

By comparing gamification use cases with Italian best practices, insurers can retain an incremental quota of generated value, through telematics solutions that provide rewards financed by partners instead of through premium discounts. This approach requires the creation of an ecosystem of partners to provide a tangible value for the customer.

Rewards can be effective ways to steer behavior if they are built on mechanisms that result in frequent interaction with the client. From this point of view, the integration of monitoring driving behavior and the reward-system mechanism has a greater influence on behavior than a tariff that calculates the renewal premium based on those same variables.

See also: InsurTech Forces Industry to Rethink

The stakes are high for the insurance sector, and the auto insurance mandate has created the conditions for insurance companies to become relevant actors within the ecosystem. That said, the insurance sector faces a double challenge: first, to introduce this type of creative thought inside the product development process and, second, to become equipped with competencies and instruments that enable the management of both gamification dynamics and the partner ecosystem. These challenges are forcing insurance carriers to start thinking and acting like InsurTech entities.

The Future of Telematics Is… Italy

The black box used for telematics makes it possible for insurers to enrich their auto insurance value proposition by adding services built upon data. These services represent a way of de-commoditizing the car insurance policy and are also a source of income. In the medium/long term, such services will become more and more important as the risks covered by car insurance decrease because of technological progress on security and connected cars. These services also increase the number of interactions with the client, creating a richer connection and improving customer satisfaction. This is true both for Italy and at an international level.

There are three macro categories when it comes to services:

  1. Informational services related to the UBI (usage-based insurance) policy, typically delivered through a smartphone app or a dedicated area on a website. These services concern: quantification of pricing adjustment at the moment of the contract renewal based on previous driving behavior; coaching and advice regarding the style of driving; advice on how to save more while behind the wheel; “gamification” that allows a comparison of one’s own driving style with that of friends. A Canada-based company called Intact and Discovery, which is based in South Africa, can be considered among the most advanced examples that currently use this type of approach. According to recent data made available by a telematics service provider, four out of five clients owning a telematics insurance policy check put their driver score at least once a month. Furthermore, there is evidence that remote coaching programs can lead to concrete results in modifying driving behavior.
  2. Product offers related to the client’s automobile — like Discovery has done in South Africa with the Tires or like Allstate Rewards — or insurance policies sold “on the go” using data collected from the boxes installed on cars (a process known as reverse geocoding). Tokio Marine (Japan-based) and telephone operator NTT Docomo have shown that impulse “cross-selling” of low-value insurance coverage is a valid approach.
  3. Services related to the customer journey in a connected car.

There is a vast array of services that can be developed within the connected car ecosystem, and the technology is moving fast. There are start-ups and innovative business models popping up everywhere around the world. To cite just a recent Italian example, there is WoW — a digital wallet created by CheBanca! — which has integrated a parking payment service called Smarticket.it.

Services could be observed on three stages of the customer journey:

  • While behind the wheel. Services include bad weather alert, speeding alert, dedicated concierge and even an alert that is activated if the car leaves a pre-defined “safe area” (family “control” options for young or old members of the family). Discovery‘s approach in this field is highly relevant and includes an anti-theft service that signals to the client if the driver has a different driving style compared with the usual one;
  • In case of an incident. Here the Italian market is considered to be an international best practice because of how it has perfected the usage of telematics data to manage services. Many companies here have invested in creating a valuable customer experience by involving partners specialized in assistance. The solutions provided in case of an incident start with contacting the client and — depending on the gravity of the event — continue with sending help directly and taking care of all the logistic and case management problems that can arise. Innovation is now focusing more on simplifying the FNOL (first notice of loss) procedure. One such example is Ania, Italian Association of Insurers, which has announced for 2016 the launch of an app for FNOL.
  • While the car is parked. Beyond locating and recovering the car in case of theft, the blackbox can send alerts when the vehicle is moved or damaged in any way. This also allows a driver to locate a parked vehicle. There are three Italian companies – TUA, Cattolica and Cargeas – that have recently launched innovative value propositions for parked cars. One of the best practices is the street sweeping alert by Metromile.

In this new service ecosystem, insurers will find themselves forced to co-compete (that is collaborate and compete) with different actors that are active in the connected car sector.

Italy is at the moment one of the most advanced countries in terms of service development connected to telematics; they have become mainstream, not just a niche. At the end of 2014, telematics represented 15% of motor insurance sales and renewals in Italy, reaching 30% in some regions, as underlined by a recent analysis by IVASS.

This creates the perfect conditions for the consolidation of approaches driven by insurance companies.