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Ready for Telematics? 7 Considerations

Telematics has the potential to dramatically alter the auto insurance industry, from personalized premiums based on individual driving data to automated emergency services and entertainment-based add-ons to more immediate and active management of claims.

Risk Assessment

Value Proposition

Telematics has much to offer both consumers and insurers.

Solution Analysis

Technology solutions available today are similar in terms of what is possible, but there is a difference in the manner that information is collected, delivered and used. When selecting the most appropriate technology solution and provider to partner with, I recommend the following considerations:

1. Telematics Model (PAYD, PHYD, CYD, Embedded): Several telematics models are emerging with varying levels of consumer interaction and integration.

Pay As You Drive (PAYD) is a mileage-based system that has been around for some time in varying forms. A device is installed in the car to validate when and where a car is driven. More advance systems are available now.

Pay How You Drive (PHYD) considers driving style and behavior in addition to collecting mileage and GPS data. The average driver has one accident every 10 to 12 years, but more common are unsafe driving maneuvers that increase the likelihood of an accident. An accelerometer used in the PHYD models can provide event information such as abrupt acceleration, deceleration, hard braking and sharp turning, which help us understand driving behavior and predict accident claims better.

Control Your Driving (CYD) goes to the next level. While PAYD and PHYD models are about collecting data rather than interacting with consumers, therefore passive in nature, CYD uses the data to provide constructive feedback to drivers through mobile or in-vehicle interfaces and potentially improves driving habits. There is sufficient evidence that driving behavior can be improved with feedback. The teen and elderly markets are niches for early adopters of this model.

Vehicles embedded with telematics devices are the long-term aspirations of both automakers and insurers. These systems provide all-around safety and driving assistance. These systems usually include services such as adaptive cruise control, collision warning, lane assistance and blind-spot detection. This model is growing fast in the auto market, driven by the safety benefits of reduced driving risk. New technology can enable additional services and features like safety controls activated when poor road conditions are detected by the GPS. BMW’s connected drive is the first step in this direction. Mobileye is helping autonomous cars “see” via crowdsourcing; the company has outfitted 4,500 NYC Uber and Lyft cars with anti collision technology. Some analysts project that all major manufacturers will have embedded telematics solutions in their cars within the next five years.

See also: Game Changer for Auto Telematics  

2. Data Protection (collection, use, disclosure and storage of personal information): Telematics generates big data. Therefore, the ownership, collection, use, disclosure and storage of data becomes crucial in gaining trust and loyalty.

Privacy: The success of other industries indicates that people are willing to trade some of their privacy in return for the right services, in the right time at the right place. That has proved true in social media, Uber, online credit card use and internet banking. When it comes to telematics, though, the stigma of insurance companies and the fear that data about driving behavior could be misused are causing concern. To overcome this hurdle, we must be as transparent as possible up front, offer the right amount of value-added services and carefully position the offering with the right messages to win over consumers. The telematics solution selected must provide a feasible program that gets appropriate access to driving patterns without seeking access to too much data. Aggregated driving scores, limitations on driving history and GPS use and specialized onboard data analysis functions could mitigate these concerns. As long as we know about driver safety and potential risks, we don’t need to dive deep into consumers’ personal data.

Storage: Dynamically generating data within an automobile or mobile phone creates challenges. The sheer amount of data generated makes it difficult, if not impossible, to store it within the automobile or mobile phone itself. Thus, decisions about what to store, and where, become very important. This issue is amplified by the privacy concern of data storage. In cases where certain pieces of data are not stored within the automobile or mobile phone, the retention aspect of privacy policies becomes important. Once the data is destroyed, there is no way to recover it. Moreover, unlike static data, which is collected only once by any interested party, dynamic data is collected repeatedly by a service provider to keep it up to date. Thus, there has to be a continuous transfer of dynamic data from many vehicles through the telematics service provider to application service providers. This requires an efficient and scalable evaluation of constraints in the privacy policies.

Security: The growth of e-commerce on the web has been limited by the reluctance of consumers to release personal information. 94% of web users decline to provide personal information to websites at one time or another when asked, and 40% who provide demographic data have gone to the trouble of fabricating it. If potential auto telematics users share the concerns of web users, then a large segment of the potential telematics market, perhaps as much as 50%, may be lost. There is significant potential for misuse of data collected. Consumers may substitute false data or hack into vehicle applications. Telematics service providers may sell consumer data to third parties without the permission of consumers. Therefore, telematics applications will be successful if providers know that the data they receive is accurate and if consumers know that their privacy is assured. Data protection must provide both privacy and security protection. Telematics solutions that can achieve that protection while enabling the sharing of data are the most viable options.

3. Ease of Installation (solution access): Complex installation processes (like blackbox installation) result in lack of interest and conversions from the traditional insurance model to the telematics model. AXA launched a mobile telematics solution in some of its international markets but was unsuccessful in acquiring a buy-in from consumers as the app had to be switched on before a drive. Such a solution leaves room for anti-selection and requires additional effort in the day-to-day lives of consumers. Even insurers like Progressive have only managed to convert approximately 20% of their book of business to the telematics model despite more than a decade of marketing initiatives and spending.

4. Ease of Use (interaction and feedback): The telematics solution selected must be intuitive and easy to use for both consumers and insurers. It should help us identify the risk (item that is insured), peril (anything that could cause damage — breakdown, weather conditions, fire, water, ice, road conditions, accident, etc.) and hazards (anything that increases the chances of peril — speeding, hard braking, driving behavior, etc.). The solution must be able to answer questions such as who is driving, how well the person is driving and how much is the car being driven. Mobile telematics solutions must be able to distinguish driving from walking, riding a bike or hopping on a train, bus or boat, for instance. The right solution will employ real-time data analytics and feedback to engage consumers, improve driving safety and facilitate better claims experience and meaningful dialogue with insurers.

5. Accuracy (trust): Our business is built on trust. It is imperative that the telematics solution we implement helps build trust and value in the digital age. Data accuracy is crucial in acquiring a buy-in from consumers, assessing driving behavior, pricing and speed and quality of response during a breakdown or accident.

6. Notifications (auto alerts): Most fleet telematics solutions have failed to create value as the focus has been largely on collection of information alone. Such solutions require someone to run reports, analyze them and understand them before taking corrective actions. This results in delayed feedback to drivers and in most instances becomes reduced to just knowing where vehicles in a fleet are (dots on a map). Automatic notification and alerts facilitate information to be reviewed at the right time, in the right place and by the right person for improved service (safety, accident and roadside assistance) and quality of care.

7. Ease of support (cloud): Cloud-based telematics solutions facilitate the delivery of new or upgraded capabilities without stretching IT bandwidth and keep the total cost of data ownership low. This is imperative if we wish to own the data. If not, then partnering with a solution provider that can maintain and support the solution at scale in an economically viable manner is crucial.

Customer Engagement

Engaging customers to improve driving behavior calls for a change in human behavior.

Humans are not inspired to act on reason alone. You don’t connect with your audience by using conventional rhetoric, which in the business world usually consists of a PowerPoint presentation in which you say “here is our company’s biggest challenge, and here’s what we need to do to prosper,” while building your case through statistics, facts and quotes from authorities. The problem with rhetoric is two-fold. First, the people you are talking to have their own set of authorities, statistics and experiences, so, while you are trying to persuade them, they are arguing with you in their heads instead of being motivated to reach certain goals. Second, if you do succeed in persuading them, you’ve only done so at an intellectual level. That’s not good enough. The theory of rational action that claims human beings are abstract symbol manipulators much like computers that seek to maximize their self-interest has dominated most of the 20th century and is the foundation for major institutions, from stock markets to governments. Research in the last couple of years, though, has led to a profound shift in how we understand human thought and behavior.

Scientists have pieced together enough evidence to know that humans are embodied beings, which means we work the way we do because of the kinds of brains we have, the kinds of bodies we have and the typical experiences that pervade our evolutionary history. We know now how real human nature works (mostly). The big picture is that we are profoundly moral beings, and our behavior is shaped by value judgments, deeply held beliefs and assertions about right and wrong. We are profoundly social, and our behavior is influenced by the behavior of those around us through shared stories, common expectations and need for cooperation (and competition). We make decisions through context-based logic determined by how we understand the situations we find ourselves in and reason with our emotions. Try asking someone on a date without those subtle emotional cues of presence, enthusiasm and appeal.

I believe that something as simple as fun can influence human behavior for the better. In a series of experiments, Volkswagen tested this theory. Check it out…

The speed camera lottery

Can we get people to obey the speed limit by making it fun to do so? The winning idea was so good that Volkswagen, together with the Swedish National Society for road safety, actually made this innovative idea a reality in Stockholm.

Piano Stairs

Can we get more people to take the stairs instead of the escalators by making it fun to do so? Piano stairs created on Odenplan underground station in Stockholm have become a hit in cities worldwide from Milan to Santiago and more.

The way to persuading people and ultimately a much more powerful way is by uniting an idea with an emotion. It comes down to good design in our attempts to change human behaviour and will depend on our understanding of REAL human nature. Knowing where we went wrong in the past and what we know now is right, we can engage and design models to promote socially desirable outcomes like reduction in environmental impact and greater sensitivity to the needs of others.

See also: 5 Value Levers for Auto Telematics  

Using the fun theory to improve driving behavior is a tested formula that has worked globally and one that I would recommend as a first step. Create a competition that is built off recognition and rewards good behavior. Huge, safe-driving campaigns could be turned into beautiful marketing messages that people would be proud to be a part of. The intelligence and data we collect could change the way we do business altogether.

Liberty Insurance: Drive Well from Michael Hanson on Vimeo.

Delivery

Inventing a future and testing ideas is not enough. To bring auto telematics solution to life, models need to change from actuarial to actuarial plus big data. Implementation will require collaboration between solution providers, underwriters, actuaries and product and marketing teams to create economically viable customer propositions, storytelling and messaging that connects with your audience and keeps their attention long enough to convert.

Scale

Companies like Uber and Lyft struggle with public perception and regulations globally. Partnering with them and creating compelling value propositions for their drivers presents an opportunity for efforts in auto telematics to scale quickly.

Conclusion

The winners will be early movers that capture the safest drivers, take advantage of pricing power and strengthen customer relationships while easing privacy concerns.

Let’s Get Rid of Risk Altogether!

The Social Network of Things is here!

In a complex landscape of old and new, cars and networks are being built to be self-aware, adaptable and communicative with one another and humans in real time. We live in extraordinary times where there is transformative experience with three kinds of cars — some fully automated, others with simple systems for accident avoidance/traffic routing and still others that account for today’s average car.

Appliances and sensors in smart homes are network-connected with seamless integration and intelligent collaboration between devices and analytics that puts homeowners in control, making them co-creators of customized experiences.

See also: Infrastructure: Risks and Opportunities  

From managing chronic diseases at one end of the spectrum to preventing disease at the other, the social network of things is revolutionizing healthcare, too. A person’s data is continuously being gathered and used to diagnose illness and to align the best providers and treatments as quickly as possible. Devices in the predictive realm have the potential to detect the onset of a wide range of health risks, such as high blood pressure and early signs of delirium.

See also: What Gets Missed in Risk Management  

As insurers, we are paymasters in the business of protection. Not only do we have a vested interest in mitigating loss, but we also have a huge responsibility to support and incorporate prevention and early intervention techniques to provide real value to our consumers. With devices that are highly networked and predict, negotiate and have an impact on outcomes, we find ourselves at the brink of redefining the underlying concept of insurance — from one of pooling risk to sublimating risk altogether.

A Lesson From a Serial Innovator

Disruptive innovation is not about technology

Systems that are innovative at one time can become the “good enough” systems we need to overcome as they age and calcify. While it’s inspiring to see new systems render old ones obsolete, this prescription of change creates a future where decisions about our collective future will be commercial engineering decisions and not social ones.

Disruptive innovation comes at you fast. It is not about creating the best products and protecting profits. For example, with the launch of ApplePay, the whole world can do something Kenyans have done every day for more than 10 years. M-PESA, the mobile payment system offered by Safaricom, has been used by most adult Kenyans and is the model for hundreds of digital payment startups around the world today.

See also: What Is the Right Innovation Process?  

Kenyans don’t have bank accounts, making paper checks useless for all but the largest transactions. M-PESA was an appealing alternative to the status quo for transferring money from one city to another. Before you could transfer money through an SMS, it was common to give money to a taxi driver heading in that direction and ask him to deliver your payment for you. Safaricom, a leading mobile network provider in Kenya, captured consumers out of mainstream banking institutions and built customers — not the best technology.

Disruptive innovation refers to the strategy that employs technology; the technology itself isn’t disruptive, but rather the application of the technology can be disruptive or not. This depends on whether the technology is positioned with a disruptive strategy.

The Secret to Changing Human Behavior

Humans are not inspired to act on reason alone. Using conventional rhetoric — which, in the business world, usually consists of a PowerPoint presentation where you say, “Here is our company’s biggest challenge, and here’s what we need to do to prosper,” building your case through statistics, facts and quotes from authorities — doesn’t connect with your audience.

The problem with such rhetoric is twofold. First, the people you are talking to have their own set of authorities, statistics and experiences; so, while you are trying to persuade them, they are arguing with you in their heads instead of being motivated to reach certain goals. Second, if you do succeed in persuading the people you’re talking to, you’ve only done so at an intellectual level, and that’s not good enough.

The theory of rational action that claims human beings are abstract symbol manipulators (much like computers that seek to maximize their self-interest) has dominated most of the 20th century and is the foundation for major institutions, from stock markets to governments. Over the last couple of years, research has led to a profound shift in how we understand human thought and behavior. Scientists have pieced together enough evidence to know that humans are embodied beings, which means we work the way we do because of the kinds of brains we have, the kinds of bodies we have and the typical experiences that pervade our evolutionary history. We know now how real human nature works (mostly).

The big picture is that we are profoundly moral beings; our behavior is shaped by value judgments, deeply held beliefs and assertions about right and wrong. We are profoundly social beings; our behavior is influenced by the behavior of those around us through shared stories, common expectations and need for cooperation (and competition). We make decisions through context-based logic determined by how we understand the situations we find ourselves in and reasoning with our emotions. Try asking someone on a date without those subtle emotional cues of presence, enthusiasm and appeal.

See also: Hacking the Human: Social Engineering  

The speed camera lottery

I believe something as simple as fun can influence human behavior for the better. In a series of experiments, Volkswagen tested this theory.

Can we get people to obey the speed limit by making it fun to do so? The winning idea was so good that Volkswagen, together with the Swedish National Society for Road Safety, actually made this innovative idea a reality in Stockholm.

Check it out…

Piano Stairs

Can we get more people to take the stairs instead of the escalators by making it fun to do so? Piano stairs created on Odenplan underground station in Stockholm have become a hit in cities worldwide — from Milan to Santiago, Chile, and more.

See also: LiveMed Brings Digital Human Touch  

The way to persuade people is by uniting an idea with an emotion. It comes down to good design in our attempts to change human behavior and will depend on our understanding of REAL human nature.

We can engage and design models to promote socially desirable outcomes such as the reduction of environmental impact and greater sensitivity to the needs of others.

Innovation: How to Wear the ‘Uber Hat’

It all began with reports of eroding books of business, price wars and marketing dollars not accounting for conversions of prospects into customers (or not in any visible manner, anyway). Then the CEO made that big “I’m back from a conference speech” and wanted to share. Suddenly, we’ve established a deadline to implement Net Promoter Score (NPS) at the enterprise level, and a whole playbook is being designed. Sound familiar?

NPS can be used to gauge the loyalty of a firm’s customers. It measures who is promoting our brand versus who is likely to detract and therefore take their business elsewhere. We soon realize that the costs of exceeding customer expectations are high, while the payoffs are minimal. We know from experience that customers are much more likely to punish bad service than to reward good service. Having your problems resolved easily is a much better predictor for satisfaction than the exceeding of expectations.

Improving the customer experience by making the customer journey easy is of greater significance to any brand. This philosophy requires different measurements, like the Customer Effort Score (CES), which is superior to Customer Satisfaction (CSAT) and Net Promoter Score (NPS) in predicting consumer behavior.

See also: What Is the Right Innovation Process?  

In the end, consumers to have a job done and will back brands that help them get the job done faster, better and cheaper. Achieving this for your consumers not only requires meeting current needs but anticipating future needs by inventing a future that is interesting and sexy and serves a purpose.

This requires moving from data to analytics, customer segmentation to ease of doing business and ideas that sell to ideas that are bought. We have started shifting the paradigm, mental models and mindsets. The future is in its making, and the applications are only limited by our imagination.

In the world of innovation, which lies at the fringes of most organizations or fills the gaps in between, we keep asking all the wrong questions. We all want frictionless technology solutions, but the focus can’t be on which technologies are enabling us or who we’ve partnered with. The focus needs to be on why we are innovating and at what scale.

Let’s consider the value proposition for transporting people from A to B. We must ask ourselves, what are the jobs to be done before that journey, during that journey and after that journey from the consumer’s point of view. I call this exercise wearing the “Uber Hat.” The jobs to be done before the journey may include finding a driver nearby, knowing how long it’ll take for the driver to arrive and figuring out if the fare is coming out of personal or business expenses. Once on the journey, the jobs to be done may include picking up a friend or colleague, knowing how long the journey will take in real-time or sharing the ride. After the journey, the jobs are knowing how much it cost, receiving a receipt for payment (especially for expense claims on business trips) and recovery of items left behind in the car.

Uber has thought about everything! It’s even started services that assist people in emerging markets to hail a ride without the app or the need for credit card payments. Who would want to take a taxi when you’ve experienced Uber’s service and quality of care?

See also: Is Insurance Having an Uber Moment?  

When we are wearing the Uber Hat, we think and act like Uber. We are able to design solutions that are globally relevant, apply to any business or market and withstand the challenges in our way, no matter how big they may seem to others. Throw creative thinking and industry expertise into the mix, and you’ve got a winning formula for the application of human-centered design that has proven its success across borders. This is the difference between a market leader and a follower.

I’m only here to present concepts. The choice is yours. If you don’t make that choice, ultimately the consumer will.