Tag Archives: pay as you drive

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.


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.


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.


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

It’s Time to Accelerate Digital Change

For global insurers, digital transformation and disruptive innovation have gone from being vague futuristic concepts to immediate action items on senior leaders’ strategic agendas. New competitive threats, continuing cost pressures, aging technology, increasing regulatory requirements and generally lackluster financial performance are among the forces that demand significant change and entirely new business models.

Other external developments — the steady progress toward driverless cars, the rapid emergence of the Internet of Things (IoT) and profound demographic shifts — are placing further pressure on insurers. A common fear is that new market entrants will do to insurance what Uber has done to ride hailing, Amazon has done to retail and robo advisers are doing to investment and wealth management.

Yes, “digital transformation” has become an overused term beloved by industry analysts, consultants and pundits in the business press. Yes, it can mean different things to different companies. However, nearly every insurer on the planet — no matter its size, structure or particular circumstances — should undertake digital transformation immediately. This is true because of ever-rising consumer expectations and the insurance sector’s lagging position in terms of embracing digital.

The good news is that many early adopters and fast followers have already demonstrated the potential to generate value by embedding digital capabilities deeply and directly into their business models. Even successful pilot programs have been of limited scope. By addressing narrowly defined problems or one specific part of the business, they have delivered limited value. Formidable cultural barriers also remain; most insurers are simply not accustomed or equipped to move at the speed of digital. Similarly, few, if any, insurers have the talent or workforce they need to thrive in the industry’s next era.

Because the value proposition for digital transformation programs reaches every dimension of the business, it can drive breakthrough performance both internally (through increased efficiency and process automation) and externally (through increased speed to market and richer consumer and agent experiences). Therefore, insurers must move boldly to devise enterprise-scale digital strategies (even if they are composed of many linked functional processes and applications) and “industrialize” their digital capabilities — that is, deploy them at scale across the business.

This paper will explore a range of specific use cases that can produce the breakthrough performance gains and ROI insurers need.

From core transformation to digital transformation

Recognizing the need to innovate and the limitations of existing technology, many insurers undertook core transformation programs. These investments were meant to help insurers set foot in the digital age, yet represented a very first step or foundation so insurers could use basic digital communications, paperless documents, online data entry, mobile apps and the like. These were necessary steps, as the latest EY insurance consumer research shows that more than 80% of customers are willing to use digital and remote contact channels (including web chat, email, mobile apps, video or phone) in place of interacting with insurers via agents or brokers.

More advanced technologies, which can enable major efficiency gains and cost improvements for basic service tasks, also require stronger and more flexible core systems. Chatbot technology, for instance, can deliver considerable value in stand-alone deployments (i.e., without being fully integrated with core claims platforms). However, the full ROI cannot be achieved without integration.

For many insurers, core transformation programs are still underway, even as insurers recognize a need to do more. Linking digital transformation programs to core transformation can help insurers use resources more effectively and strengthen the business case. Waiting for core transformation programs to be completed and then taking up the digital transformation would likely result in many missed performance improvement and innovation opportunities, as well as higher implementation costs.

One key challenge is the industry’s lack of standardized methodologies and metrics to assess digital maturity. With unclear visibility, insurance leaders will have a difficult time knowing where to prioritize investments or recognizing the most compelling parts of the business case for digital transformation.

But, because digital transformation is a long journey, most insurers are best served by a phased or progressive approach. This is not to suggest that culturally risk-averse insurers be even more cautious. Rather, it is to acknowledge that complete digital transformation at one go can’t be managed; there are simply too many contingencies, dependencies and risks that must be accounted for.

See also: The Key to Digital Innovation Success  

Insurers must be focused and bold within their progressive approach to digital transformation, as it is the way to generate quick wins and create near-term value that can be invested in the next steps. Each step along the digital maturity curve enables future gains. Rather than waiting to be disrupted, truly digital insurers move boldly, testing and learning in pursuit of innovation and redesigning operations, engaging customers in new ways and seeking out new partners.

Digital transformation across the insurance value chain: a path to maturity and value creation

Digital transformation delivers tangible and intangible value across the insurance value chain, with specific benefits in six key areas:

It’s important to emphasize speed and agility as essential attributes of the digital insurer. Even the most innovative firms must move quickly if they are to fully capitalize on their innovations — a concept that applies across the entire value chain. The idea is to launch microservices faster and embrace modernized technology where possible. For instance, deploying cloud infrastructures will enable some parts of the business to scale up and scale down faster, without disrupting other parts of the business with “big dig” implementations.

The dependencies and limitations of legacy technology are also worth reiterating. Insurers that can integrate process innovations and new tools with existing systems — and do so efficiently and without introducing operational risk — will gain a sustainable competitive advantage.

The following digital transformation scorecards reflect how the benefits apply to different technologies and initiatives.


Today’s consumers are naturally omni-channel, researching products online, recommending and talking about them with friends and contacts on social media and then buying them via mobile apps or at brick-and-mortar retail locations. Basically, they want a wide range of options — text, email, web chat, phone and sometimes in-person. A better omni-channel environment may also enable insurers to place new products in front of potential customers sooner and more directly than in the past.

Insurers must look beyond merely supporting multiple channels and find the means to allow customers to move seamlessly between channels, or even within channels (such as when they move from chatting with a bot to chatting with a human agent). It is difficult to overstate how challenging it is to create the capabilities (both technological and organizational) to recognize customers and what they are seeking to do, without forcing them to re-enter their passwords or repeat their questions.

There are many other subtleties to master, including context. For example, a customer trying to connect via social media to voice concerns is not likely to respond well to a default ad or up-sell offering. Omni-channel is increasingly a baseline capability that insurers must establish to achieve digital maturity.

Big data analytics

The application of advanced analytical techniques to large and ever-expanding data sets is also foundational for digital insurers. For instance, predictive analytics can identify suitable products for customers in particular regions and demographic cohorts that go far beyond the rudimentary cross-selling and up-selling approaches used by many insurers. Big data analytics also hold the key for creating personalized user experiences.

Analytics that “listen” to customer inputs and recognize patterns can identify opportunities for new products that can be launched quickly to seize market openings. Deep analysis of the customer base may make clear which distribution channels (including individual agents and brokers) are the best fit for certain types of leads, leading to increased sales productivity.

The back-office value proposition for big data analytics can also be built on superior recognition of fraudulent claims, which are estimated to be around 10% of all submitted claims, with an impact of approximately $40 billion in the U.S. alone. Reducing that number is an example of how digital transformation efforts can be self-funding. Plus, the analytics capabilities established in anti-fraud units can be extended into other areas of the business.

Big data is also reshaping the risk and compliance space in important ways. As insurers move toward more precise risk evaluations (including the use of data from social channels), they must also be cognizant of shifting regulations regarding data security and consumer privacy. It won’t be easy ground to navigate.

Internet of Things (IoT)

The onset of smart homes gives insurers a unique opportunity to adopt more advanced and effective risk mitigation techniques. For instance, intelligent sensors can monitor the flow of water running through pipes to protect against losses caused by a broken water pipe. Similar technology can be used to monitor for fire or flood conditions or break-ins at both private homes and commercial properties.

The IoT clearly illustrates the new competitive fronts and partnership opportunities for insurers; leading technology and consumer electronics providers have a head start in engaging consumers via smart appliances and thermostats. Consumers, therefore, may not wish to share the same or additional data with their insurers. Insurers may also be confronted by the data capture and management challenges related to IoT and other connected devices.


Sometimes grouped with IoT, data from sensors and telematics devices have applications across the full range of insurance lines:

  • Real-time driver behavior data for automotive insurance
  • Smart appliances — including thermostats and security alarms — within homeowners insurance
  • Fitness trackers for life and health insurance
  • Warehouse monitors and fleet management in commercial insurance

The data streams from these devices are invaluable for more precise underwriting and more responsive claims management, as well as product innovation. Telematics data provides the foundation for usage-based insurance (UBI), which is sometimes called “pay-as-you-drive” or “pay-as-you-live.” Premium pricing could be based on actual usage and driving habits, with discounts linked to miles driven, slow or moderate speeds and safe braking patterns, for instance.

Consider, too, how in-vehicle devices enable a fully automated claims process:

  • Telematics data registers an automobile accident and automatically triggers a first notice of loss (FNOL) entry.
  • Claims information is updated through text-based interactions with drivers or fleet managers.
  • Claimants could be offered the opportunity to close claims in 60 minutes or less.

Such data could also be used to combat claims fraud, with analysis of the links between severity of the medical condition and the impact of the accident. Some insurers are already realizing the benefits of safe driving discounts and more effective fraud prevention. These telematics-driven processes will likely become standard operating procedure for all insurers in the near future.

Voice biometrics and analysis

Audio and voice data may be the most unstructured data of all, but it too offers considerable potential value to those insurers that can learn to harness it. A first step is to use voice biometrics to identify customers when they call into contact centers, saving customers the inconvenience of entering policy numbers and passwords, information that may not be readily at hand.

Other insurers seeking to better understand their customers may convert analog voice data from call center interactions into digital formats that can be scanned and analyzed to identify customer emotions and adjust service delivery or renewal and cross-selling offers accordingly. The manual quality control process checks for less than 1% of the recordings, which is insufficient. Through automation, the entire recording can be assessed to identify improvement areas.

See also: 4 Rules for Digital Transformation  

Drones and satellites

Early-adopting insurers are already using drones and satellites to handle critical tasks in underwriting and claims. In commercial insurance, for instance, drones can conduct site inspections, capturing thermal imagery of facilities or work sites. Their reviews can be as specific as looking for roof cracks, old or damaged boilers and other physical plan defects that can pose claims risks.

Within homeowners lines, satellites can capture data to analyze roofs, chimneys and surrounding terrain so that insurers can determine which homeowner they want to add to underwrite, as well as calculate competitive and profitable premiums. When linked to digital communications tools, drone and satellite data can even trigger notifications to customers of new price options or policy adjustments.

Within claims, drones and satellites can handle many tasks previously handled by human adjustors across all lines of business. Such remote assessments can reduce claims processing time by a considerable degree. This method is particularly effective in situations such as after floods, fires and natural disasters, where direct assessment is not possible.

While many transformation programs that use drones and satellites remain in the experimental stages due to operational challenges, it is possible that they can improve the efficiency and accuracy of underwriting and claims information gathering by 40%.


Blockchain provides a foundation for entirely new business models and product offerings, such as peer-to-peer insurance, thanks to its ability to provide virtual assistance for quoting, claims handling and other tasks. It also provides a new level of information transparency, accuracy and currency, with easier access for all parties and stakeholders in an insurance contract. With higher levels of autonomy and attribution, blockchain’s architectural properties provide a strong digital foundation to drive use of mobile-to-mobile transactions and swifter, secure payment models, improved data transparency and reduced risk of duplication or exposure management.

Insurance companies are interested in converting selected policies from an existing book to a peer-to-peer market. A blockchain network is developed as a mechanism for integrating this peer-to-peer market with a distributed transaction ledger, transparent auditability and “smart” executable policy.

E-aggregators are another emerging business model that is likely to gain traction, because it is appealing to both insurers and the customers. Insurers can offer better pricing due to reduced commissions compared with a traditional agent-based distribution model, while customers gain freedom to compare different policies based on better information. Of course, e-aggregators (whether fully independent or built through an existing technology platform) will require a sophisticated and robust digital platform for gathering information from different insurance companies to present it to consumers in the context of a clear, intuitive experience. It is also important for insurance companies to transfer information to e-aggregators rapidly; otherwise, there is the risk they will miss out on sales opportunities. This is why blockchain is the right technology for connecting e-aggregators and insurers.

To see the full report from EY, click here.

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

The traditional underwriting of an auto policy is based on a snapshot of certain static variables that belong to the client and his vehicle – the impact and weight on the pricing is determined by the analysis of the claims historical series of the company – and the renewal comes after taking the same type of snapshot after 12 months.

Telematics is becoming more and more used as a way of changing this approach and going more toward an individual pricing of risks, which uses a “movie” of the client’s driving: Already today, more than half of the products that have a black box and that are present on the Italian market have a usage-based (UBI) tariff. (The rest of these products do not have any variable component linked to telematics information, only an up-front flat discount.)

The ways in which telematics data can be used within the tariff mechanism fall into three main categories:

  1. Telematics can be seen as an option on the existing tariff or as a stand-alone product;
  2. The client’s value proposition can be “real individual pricing” applied during the first year, or a fixed discount for the first year and the “promise of a discount” at renewal based on the driving behavior in the previous 12 months;
  3. Variables can be incorporated within the tariff, either referring only to the distance traveled (“pay as you drive”) or can also take into consideration a wider range of data regarding the driving behavior (“pay how you drive”).

Pay as you drive (PAYD)

This type of product prices based on distance traveled and represents the most commonly used UBI tariff approach on the Italian market: around 80% of UBI products currently use a “kilometer” approach.

This approach focuses on a pretty wide niche and is based on a discount created especially for those clients who don’t use their cars often: For example, California-based Metromile starts from the client’s profile – based on traditional static variables – to determine the monthly fixed cost and the fee per kilometer; then, each month, Metromile measures with the box the “amount of risk exposure” (number of kilometers) and charges accordingly. Product innovation is moving toward assigning a different importance to the kilometers traveled based on the time of day and the type of road.

Looking at the PAYD solutions in Italy, in 30% of the cases telematics is an option on traditional policies and in 40% of the cases there is some form of adjustment of the premium during the first year.

Pay how you drive (PHYD)

This approach exploits the true telematics potential to define the adequate price for each client, based not only on the “amount of exposure to risk” but the “real level of risk,” based on actual driving behavior. PHYD also brings major benefits by influencing driving behavior and by allowing for the acquisition and retention of less risky customers. In addition, insurers can switch from a niche approach to one that can be applied to the whole portfolio. Studies show that the ability to discriminate about risk is highly elevated. The 10% of clients that are identified as riskiest on the base of behavioral telematics account for 40% of total claims, while identifying the riskiest 10% based on traditional variables usually intercepts only 25% to 30% of claims.

A very interesting example is the policy launched recently by Direct Assurance (Axa Group) in France: The product includes a self-installing telematics box that is sent to the client’s home. The client’s cost is adjusted from month to month based on her driving behavior (it may vary between plus 10% and minus 50% with respect to the first month’s premium).

The range of variables that are considered is wide. They start with traveled kilometers (having a different weight based on road type, time of day, day of the week and weather conditions). They move on to the intensity and length of braking, cornering and acceleration; respecting of speed limits; time spent behind the wheel; familiarity with the roads; and any use of the mobile phone while driving.

It becomes clear how the growth of this type of solution – which today still represents only a small part of the millions of telematics insurance policies that are in circulation worldwide – will make the ability to extract insights from big data the key element of the competition among insurance companies.

This article originally appeared in the Insurance Daily n. 738 Edition.

5 Value Levers for Auto Telematics

Telematics could be one of the most relevant digital innovations in the insurance industry, directly affecting results. Worldwide diffusion of telematics-based motor insurance policies is currently at an early stage, but the best practices achieved levels of penetration higher than 20% of the motor portfolio. The diffusion is growing fast, with well-recognized benefits for the motor insurance value chain.

Looking across countries at best practices, it is possible to identify five value-creation levers:

  1. Risk selection
  2. Pricing (risk-based)
  3. Value-added services
  4. Loss control
  5. Loyalty and behavior modification programs

1. Risk selection

Telematics can be indirectly or directly used to select risks at an underwriting stage. As a matter of fact, products subjected to steady monitoring through telematics indirectly discourage purchase by risky clients, hence limiting adverse selection and fraudulent intent.

Data collection can directly improve the overall quality of the underwriting process, allowing price adjustments or covenants and options related to what the monitoring finds.

For instance, Progressive’s Snapshot provides:

  • a device that measures client driving style;
  • a predictive approach based on data collection;
  • a discount based on information gathered.

2. Pricing (risk-based)

Through telematics, a steadfast monitoring of “quantity” and “level” of risk has become possible. The risk can be calculated on the basis of information monitored continuously, directly determining pricing for individual customers. This may cover usage. Premiums can be adjusted within the year the policy covers, or there can be a discount the following year.

There are solutions such as PAYD (pay as you drive) policies that monitor mileage (with different weights for different time and itineraries) and compute a premium adjustment. PHYD (pay how you drive) policies, instead, integrate information gathered on mileage with an analysis of the client driving style, defined through both mileage and driving behaviors (the number and the intensity of accelerations and stops, driving timetables, speed and other variables).

3. Value-added services

Value-added services can be offered to the insured by the insurer or partners to exploit data detected and sent via telematics. Some examples related to the automobile business are:

  • Car antitheft systems through an installed back box;
  • Emergency services with automatic claim detection or buttons for direct-dialing the assistance center;
  • The possibility to link the telematics device to a payment system (and confirm via smartphone app) to authorize all car-related transactions, such as parking, tolls and refueling.

4. Loss control

Telematics — based on a box installed within the car — also allows for the use of data detected by sensors to limit the loss ratio of the motor portfolio. In this sense, telematics enables the development of claims management processes that are faster and more efficient, by anticipating:

  • The actual verification of the claim (anticipation of the first notice of loss);
  • The direct contact with the client for description of the claim;
  • The attempt to use agreed body shops.

The use of structured information coming from telematics sensors optimizes claim evaluation, improving fraud detection and providing more information during any eventual in-court processes.

5. Loyalty and behavior modification programs

Behavioral programs are basically approaches that exploit information gathered on comportment to direct clients toward less risky solutions.

This can be fairly achieved through the inclusion of telematics devices and measurement of risky behaviors.

Discovery’s Vitality Drive has applied this approach with a proposition based on:

  • “Black box” requested by the client to have access to the loyalty system, with a monthly fee;
  • Drive style monitoring and reporting through feedback;
  • Incentives for other “virtuous behaviors” (car maintenance, driving courses, …);
  • Cash-back fuel expense, related to the score of the driving style and of other monitored behaviors.

The telematics business evolution — from a niche underwriting solution focused on younger and low-mileage drivers to a mainstream solution broadly applied on motor portfolios — requires the creation of an integrated approach based all the five levers. This approach has the potential to be a real game changer in the motor insurance business.

3 Ways to Allay Drivers’ Privacy Fears

Usage-based insurance, a.k.a. pay-as-you-drive, is an intriguing proposition to drivers.

For most drivers, usage-based insurance offers plenty of allure: cost savings, extra motivation to drive safely and added incentive for the ecologically minded to drive less often. But some customers note privacy concerns.

Here are three ways to address privacy to make customers feel more comfortable.

1.  Show them the benefit. Younger consumers have grown up in the digital age, and, as such, they’ve gotten used to sacrificing a bit of privacy to gain something of value. According to Pew, 81% of Millennials are on Facebook, and a full 55% have posted a “selfie” on a social media site. If they understand that giving up some driving privacy may allow them to earn better rates, and that they may even become better drivers from the feedback they receive, privacy concerns may fall by the wayside.

2.  Be transparent. Track only the data you need, and be straightforward about it. Inform your customers of what you track, where you store it, why you need it and how you protect it. Honesty garners respect, and transparency puts you one step ahead.

In the area of transparency, smartphone UBI delivers a clear advantage over the use of onboard diagnostic devices. With a black box plugged into the dash, consumers have no idea what you’re looking at. With smartphone UBI, they can see every factor measured and how they score.

When marketing and onboarding new customers, be clear about how data will and will not be used. Some consumers may want to know if their information will be given to police or other third parties. Answer these questions clearly, and abide by the policies established.

3.  Continue to offer choices. Some drivers love the concept of UBI and are willing to reveal their habits to participate. Others are not — and that’s okay. By providing your customers the information they need to understand their options, and reminding them they’re free to choose whatever is best for them, you relieve concerns and build trust — not to mention brand loyalty.

For more on how UBI works for drivers, click here.