Tag Archives: Norwich Union

Telematics: Time to Move Beyond Pricing

Sometimes it is difficult to believe that vehicle telematics for usage-based insurance is 20 years old. While the likes of Norwich Union and Progressive began planning and piloting long ago, most of the real activity in the market has taken place over the last few years. SMA’s recently released research report: Telematics in P&C Insurance: The Need to Move Beyond Pricing, profiles the state of the UBI market in North America, with a special emphasis on data and how that translates into value propositions.

As the report title suggests, the North American market tends to be stuck in neutral, focusing primarily on offering premium discounts to policyholders that exhibit certain driving behaviors, as tracked by the telematics device. While there are isolated instances of insurers that have gone beyond pricing, the majority of the programs in the market and the pilots underway concentrate on attracting customers through discounts (which are often substantial). In other markets, notably Italy, Brazil, South Africa, and the U.K., other value propositions are already in the market, including safety advice, theft deterrence and concierge services.

See also: Telematics: No Longer Just For Cars

In theory, there should be a clear market advantage to insurers that can more precisely determine the risk characteristics for a customer and price accordingly, grabbing market share while maintaining profitability in the process. However, in many cases it has not been quite that simple. Once you get beyond the Progressives and Allstates of the insurance world, which have collected data from billions of telematics miles, most of the remaining companies lack the historical data to satisfy actuaries in pricing and profitability. And customer adoption has not been as rapid as expected, either.

Still, the move movement toward an increasing usage of UBI programs continues, with almost three in five insurers that write vehicle insurance either having programs in the market or plans to do so in the next few years.

See also: Telematics: Now a ‘Movie,’ Not ‘Snapshot’

The SMA research confirms that primary data sources are used for pricing, but also identifies other types of data that are being collected and could be used for future value propositions. For example, most insurers with UBI programs are collecting data on location, routes driven, vehicle diagnostics and other information. There are a wide range of new services that insurers might offer to both personal and commercial lines customers based on this data, like those already offered in other countries. And the beauty of many of the offerings that go beyond pricing is that insurers will be able to test propositions in the market without requiring regulatory approval.

Is Verizon About to Outmaneuver Insurers?

Today, my (snail) mailbox contained a postcard from Verizon offering to turn my car into a connected car. To be more precise, the offer was to my 22-year-old daughter — neither my wife nor I got the same offer. In essence, Verizon provides a device that plugs into the OBD port, a second device that clips on the visor and a smartphone app to control the service. This is an excellent example of other industries seizing on opportunities that should be prime territory for insurers.

Verizon’s hum service (www.hum.com) includes capabilities in six areas: roadside assistance, diagnostic alerts, a vehicle locator, a certified mechanics hotline, maintenance reminders and hotel/car rental discounts. It’s being pitched as a great holiday gift — just plug it in, and you are ready to go!

This is by no means the only offer of this type. Other companies such as Automatic Labs (www.automatic.com) sell OBD devices that provide a variety of services. Automatic has a “Do not disturb” app (Androids only) that keeps the phone quiet while someone is driving, to minimize distractions and reduce the urge to text. The Automatic device/apps will also alert the driver when she is exceeding the speed limit, track when the ignition is on/off, send help if you crash and trigger actions like closing the garage door when you leave the house.

At SMA, we’ve been advocating more varied value propositions for telematics for some time. Some insurers outside the U.S. have ventured into value propositions that have included vehicle location, vehicle performance and some of the other services offered by Verizon. But, in the U.S. today, the primary value proposition for personal auto is the potential to reduce premiums; a few companies are providing other services, such as encouraging safe driving.

What is frustrating is that the insurance industry was the pioneer in telematics and experimenting with the use of OBD devices, car navigation systems and mobile apps based on real-time vehicle data. These efforts stretch back to the late 1990s, with pilots by UK-based Norwich Union, then Progressive and others. Unfortunately, most insurers have been thinking about the potential in the context of current insurance products — a coverage-based view.

The connected world is emerging rapidly, presenting many opportunities to provide services to homeowners, businesses, vehicle owners and other segments. Many of these services are aimed at improving safety and providing peace of mind to individuals and businesses.

Hmmm… sounds curiously like the core mission of the insurance industry.