Tag Archives: telematics

OnStar: Next Step for OEM Partnerships

GM announced this week that it will start selling policies directly to drivers through its new OnStar Insurance program. The company will start with its employees in Arizona and plans to expand to the general public by the end of 2021. This move has gotten some attention in mainstream sources like the Wall Street Journal.

The policies are underwritten by American Family Insurance affiliates and issued on its paper. In that sense, this partnership is an extension of the insurer/auto manufacturer data-sharing partnerships that have proliferated in recent years. Insurers have inked these deals to create a new way to collect driving data that’s easier for the driver than installing a device or downloading an app.

These deals have typically involved the original equipment manufacturers (OEMs) sharing driving data with the insurer, which can use it to score drivers and offer discounts. In GM’s case, it’s also been a marketing partner—you can head to OnStar.com and enter your state to find insurers that might offer you a discount if you’re a good driver.

What’s different about OnStar Insurance is that the OEM offers the policy under its own (subsidiary) brand, directly to the driver. It’s the logical extension of the relationship for both partners. For GM, it’s another way to monetize its data stream, which OEMs generally have trouble doing. AmFam gets additional marketing muscle and a new direct sales channel. This development was more of a “when” than an “if.”

Telematics is here to stay, but bullish mid-2010s projections for telematics adoption and growth haven’t materialized. OEM/insurer partnerships already had the potential to open up market space and reduce the barrier to entry; OEMs offering insurance directly to drivers may expand and accelerate this.

See also: The Evolution of Telematics Programs

How these policies are sold will be a significant factor. Most drivers opt into or out of OEM data sharing when they buy their vehicles; if these policies follow the same pattern, it will be on individual dealers to push the insurance offerings. On the other hand, it’s easy to imagine OnStar alerting a driver who’d agreed to share data but hadn’t bought OnStar Insurance that the drive could save X amount by switching.

User experience will also be a major determinant. GM currently plans to use OnStar to coach its drivers. That’s potentially a major plus, but only if the coaching is done well and the user experience (UX) is slick. Consumers have high expectations around digital experiences, and half-efforts won’t go over well.

Finally, one potential drawback: It looks like a major draw to OnStar Insurance will be price, which further cements the connection between telematics and discounts. Reward- and engagement-based telematics programs have been successful overseas, but they haven’t taken hold stateside. Anecdotally, insurers have told me that U.S. consumers expect upfront discounts as an incentive for enrollment in telematics-based insurance. Offerings like OnStar Insurance could further entrench the idea that telematics is all about exchanging data for money.

I recently published a report on telematics that covers these and other issues. Feel free to reach out to me with any questions!

The Evolution of Telematics Programs

Thirteen years after Progressive launched Snapshot, its usage-based insurance (UBI) rewards program, telematics-based policies represent a modest part of personal and commercial lines insurance. Bullish estimates of double-digit adoption by 2020 haven’t materialized, but it’s clear that telematics-based products appeal to a need within the market. Adoption will likely continue to grow. Insurers should consider telematics strategically, whether they expect to enter the space or not.

Adoption: Modest but Real

Insurer telematics activity in recent years has split into rough thirds: About a third of property/casualty insurers are actively engaged, a third are monitoring the space but not yet acting and a third feel telematics don’t apply to them.

Overall, Novarica estimates the penetration of telematics programs at around 6% to 8% of insurers’ overall books, based on industry research and conversations with insurers. These numbers vary substantially from carrier to carrier. At some, telematics-backed policies can be more than 30% of their books, while, at others, it can be as little as 1%. 

Applications: Increasing in Variety

Insurers predominantly use telematics for underwriting and actuarial or product design. This approach aligns with the stereotypical UBI offering, where insurers rate drivers based on telematics data and offer retention discounts to those who prove to be safe risks. More insurers are also providing pay-per-mile offerings (such as Liberty Mutual’s ByMile and Nationwide’s SmartMiles), which charge customers based on the actual amount they drive.

Applications in other insurance functions are less common, but this is changing as both insurers and vendors innovate to offer new types of coverages and programs, like rewards programs to generate regular customer engagement or teen driving programs that can leverage telematics to create speed alerts. These offerings align with broader industry trends toward creating richer digital experiences, particularly in personal lines.

Insurers should also understand that getting the most out of these advanced features requires technological and business support beyond the telematics offering itself. For example, to support a feature like automatic first notice of loss (FNOL), insurers will need quality data, and they’ll need to be able to move it between systems across the enterprise. A comprehensive rewards program may require focused effort from marketing and customer service to stay on-message and deliver a seamless experience.

See also: Driving Into the Future of Telematics

Program Design: Essential for Success

The variety of telematics capabilities and offerings in the market means that insurers should design or expand their telematics programs with care and forethought. As with any technology initiative, the point of telematics-based insurance offerings is to better manage risk, reduce costs or create a superior customer experience.

For telematics, that means that insurers need to consider a number of factors to guide the features of their offerings. These include the target market segment, the channel through which the offering will be distributed, the services offered and how all of these elements align with existing technological capabilities and processes. There’s no one answer, and anything from a basic UBI product to an engaging rewards program could be the right fit, depending on what an insurer wants to accomplish.

Fortunately for insurers that have taken a wait-and-see approach, there are a number of products available in the marketplace, from turnkey telematics solutions to book-of-business analysis from a variety of telematics service providers and data brokers. Although early adopters like Progressive procured and managed their own telematics devices, insurers don’t have to do this anymore. Carriers that are new to the space shouldn’t spend time replicating technology that already exists.

Telematics Beyond 2020

Telematics adoption will likely continue to increase slowly but steadily over the next several years. Depending on the rate of growth, telematics-based policies could make up between $22 billion and $32 billion of the personal lines auto market by 2025.

COVID-19 will be a major factor in that growth. Anecdotally, Novarica has heard from both insurers and vendors that interest in pay-as-you-drive or pay-per-mile policies has increased in 2020 as more Americans are working from home. How long the pandemic lasts and whether widespread remote work becomes normalized could speed adoption for both insurers and policyholders.

Auto manufacturers have also been active in the space, with a number of recently announced partnerships to share driving data from connected vehicles with insurance companies. This, too, could speed telematics expansion by lowering the initial barrier to entry. 

Telematics-based insurance offerings are a small but real portion of the personal and commercial auto markets that will continue to grow. Telematics isn’t going away, but it also won’t dominate the auto insurance industry in the next five to 10 years.

At the same time, telematics doesn’t have to become dominant to affect consumer expectations around price, convenience and service. Insurers should consider potential impact now so that no matter what decision they make, it’s a strategic one.

To learn more about how insurers are using telematics, read Novarica’s full report Telematics in Insurance: Overview and Key Issues.

How Insurers Can Help Reduce Car Accidents

Changes in vehicle technology and traffic conditions and new driver distractions affect the already fragile balance in insurer motor portfolios. In highly competitive markets, a shift toward, for example, higher repair costs for fender benders can turn a healthy portfolio into a product manager’s nightmare. So as an insurer, what can you do to make your portfolio more resilient? Increasing premiums is possible but only to a limited extent. It is my strong belief that, in the end, it is in everybody’s interest that insurance companies take a more active role in controlling accident rates and reducing the frequency and impact of road accidents, with broad benefits to our society in terms of traffic safety while at the same time improving portfolio returns.

About the limitations of road safety regulations

Why is this relevant for insurers? Isn’t it foremost the role of governments to manage road safety and reduce accidents? In principle, yes, but there are a number of issues:

  1. It may take a lot of time to respond to today’s fast-paced developments with new policies and regulations. For instance, in a state like Utah, reducing the permissible alcohol consumption limit while driving has shown significant improvements in accidental fatality rates. The Utah bill was passed in early 2017, but it took the state over 20 months to bring it to implementation. So we’re talking years and sometimes decades.
  2. If there are no real-time, contextual data available, actual regulations may not accurately reflect the nature of specific accident causes. Take the Vision Zero Model: Initially implemented in Scandinavia, this program focused on redesigning high-crash zones. This has caused fatality rates to go down in 2018 and 2019. The change does, however, require detailed data collection.
  3. There are differences in the data provided by different organizations. NSC and CDC data provide partial views and are often inconsistent.

Surge in injuries and fatalities related to motor vehicles

In the U.S., over $177 billion was spent in 2018 by federal and state governments in constructing highways and public transit systems. Compared with this, the federal budget for running road-safety programs was $579 million in 2015. A huge number, even though it is only 3% of the construction budget. Yet the NSC notes a spike in pedestrian deaths in 2018 and concludes that 90% of accidents involving a car are caused due to human error, with over 57% of fatal crashes attributable to driving under the influence, speeding or distraction. Recent CDC data show a 20% uptick in fatality rates attributable to motor vehicle accidents, despite all public spending. So what are we missing?

America First also applies to road-crash deaths

Recent data show that incurred losses for auto insurance between 2015 and 2019 have increased by nearly 20% in liabilities and approximately 30% in physical damage claims for the private passenger auto segment.

While the physical claims increase can be attributed to the 17% jump in the price of hospital services, as tracked by the Consumer Price Index for the same period, the increase in liability rates is not explainable with the same reasoning. On the contrary: In the same period, the CPI for both new and used cars has gone down.

Something has led the U.S. to become the home to the highest number of road-crash deaths for any high-income country, and the number is over 50% higher than the nearest one reported by Western Europe, Canada, Australia and Japan. There is a piece of the puzzle missing that’s required to bring these fatality rates down. One thing the data suggest: Whatever it is, it’s unique and specific to the U.S.

Approaching the road safety problem from a different angle

Government-initiated measures are increasingly ineffective. Implementation is long, hard and expensive, and they don’t seem to have a tangible impact. It’s high time to complement these top-down approaches with bottom-up activities addressing behavioral change at the individual level — for instance, by building reward mechanisms that consistently promote and reward safe driving behavior. Modern telematics solutions can provide the data to do that seamlessly.

A 360-degree view on traffic situations

While currently often being implemented to provide usage-based insurance (UBI) or pay-how-you-drive products, telematics encourages the individual driver’s behavior to drive safely. Of key importance is the quality of the data. Earlier telematics initiatives were limited by ambiguity. Was the harsh braking a quick reaction to avoid an accident? Or was it dangerous behavior? Modern solutions have been designed to solve these limitations, by integrating different data streams to provide a 360-degree view on incidents.

The technology has a wide range of use cases. Addressing individual driver behavior, telematics provide insurance companies the opportunity to build new value propositions around claims reduction, safe driving, emergency response services or pay-per-mile offerings that are especially relevant in our COVID-9 reality, where lockdowns and working from home reduce overall mileage driven by commuters. Forward-thinking insurers can unleash all their creativity and innovation power to create engaging motor insurance solutions incorporating modern technology and services now that the underlying telematics technologies are maturing.

Capitalizing on granular traffic safety data

It is my firm belief that expanding existing road safety programs with sophisticated data-driven technologies will provide the basis for more effective strategies to be implemented. Onboarding and exploring the latest solutions and technologies is critical to remain effective. There is a big advantage: New solutions are increasingly easy to implement, providing no-regret learning scenarios to find the best use cases and roll out approaches quickly.

See also: Life Insurance’s New Occupation

Real-time contextual data is reducing ambiguity

Earlier telematic solutions may have provided partial data that did not always provide the full picture of what was going on, or required hardware solutions like dongles. The associated costs, complexities and limitations in data quality may have hampered well-meant, early business cases. The successfully scaling up of safety and prevention initiatives in combination with insurance is definitely not for the faint of heart, as I wrote in an earlier article on barriers for these initiatives.

The lesson here is not “We’ve tried, it didn’t work, let’s forget about it.” Instead, these activities are much-needed stepping stones toward understanding what in fact does work. For decades, insurers have worked with sketchy, outdated, often unverified or unstructured data for their decision making, under the assumption that inadequate data are always better than no data at all. These days, we can increasingly leverage granular, real-time data from low-cost sensors, e.g. in mobile phones, that contribute to better risk pricing, early warnings for all kinds of hazards and automated claims processing. That is in itself a major improvement of existing insurance processes.

Actionable insights enable the transfer from managing policies to managing risks

There is another upside. With real-time, contextual data, we can present actionable insights to customers and partners in an intuitive, user-friendly, non-intrusive way. This is what I call the transformation from managing policies to managing risks. Why wait until something happens, when the technology and data are available to actually reduce the chance or impact of an unforeseen event? You might be able to start a PPM insurance project and gradually expand to more sophisticated features to nudge your policy holders toward safer driving habits.

Insurers have the opportunity to broaden their value proposition and solve customer engagement challenges at the same time.

Will COVID-19 Give Telematics New Life?

Over the past several weeks, there have been numerous aerial photos of some of the nation’s largest highway systems – devoid of vehicles. The sight of tens of miles of ramps, junctions and straightaways with no visible cars is startling, almost a made-for-Hollywood view. But COVID-19 has taken a huge percentage of people out of their vehicles, leaving their cars idle in driveways and garages. Given that vehicle usage is a fundamental and historical rating factor – a predictor of accident frequency – one could conjecture that telematics might be heading toward a new and shining position within the industry.

There are several points for insurers to consider.

  • A huge percentage of businesses that have never had a home-based workforce have been compelled to have one due to stay-at-home advisories. Published interviews indicate that company executives across all industries believe the experience with COVID-19 will change the nature of work even faster than anticipated. More workers will be home-based either permanently or part-time. Will a greater percentage of consumers see the value of usage-based, telematics-driven insurance, given that their vehicles will be idle for greater periods? Insurers need to be prepared for this outcome.
  • Insurers that have yet to commit to telematics programs may well be feeling the strain of not doing so. Many of the largest auto insurers have announced they will refund portions of automobile premiums due to the precipitous decline in miles driven. In particular, Allstate knows, through its telematics programs, that driving has declined by 35% to 50% in terms of miles. This makes the company’s refund program much more fact-based. Clearly, there is significant customer goodwill value in making refunds voluntarily. But what if regulators require insurers to do this across the board? Without telematics data, determining refunds is much more of a guess. And no insurer likes guessing. For the long term, telematics data can facilitate a smooth communication process between insurers and regulators on a number of levels, and this is a good thing.
  • From a claims perspective, adjusting losses in a time where staying home is the norm is a huge challenge. There are a number of technologies that insurers are using to compensate, most prominently DIY photo-estimating. In some cases, insurers are rolling out technologies that were in limited tests to cover the gap in face-to-face adjusting practices. However, sophisticated telematics devices can detect crash damage and relay crash information automatically, eliminating the DIY step and improving accuracy. While there is a fervent hope that we never again have to self-quarantine due to a pandemic, there is significant value in getting sensor-based, telematics crash information directly from point of impact.

See also: 10 Moments of Truth From COVID-19  

To date, telematics adoption has settled in as a segment. Projections that telematics would be the dominant base for all auto programs have not materialized. There are many reasons, but maybe the COVID-19 pandemic will be the impetus that consumers and insurers need to up adoption rates. In the not-too-distant future, the highways will again fill up with more than medical professionals, first responders and retail workers. Why waste the opportunity to use actual data to improve insurance outcomes? Telematics can make the connections!

3 Ways AI, Telematics Revolutionize Claims

The automotive claims process has long been strenuous, time-consuming and costly both for insurers and consumers. The moment an incident occurs, a driver is placed in a world of stress. In addition to managing the emotional strain that is a car crash, the driver now has to deal with several different parties to repair the damage. Traditionally, it takes one to three days after filing a claim to initiate contact with an insurance adjuster (it takes even more time if the adjuster needs to inspect the damage).

There is suddenly an unexpected burden consuming time and money and requiring paperwork. But advancements in artificial intelligence and telematics (such as our new Claims Studio) can revolutionize the claims system by validating claims, processing them much faster and placing safety at the forefront for drivers. 

Here are three ways the insurance industry can adapt to improve the claims process: 

Validating Claims

Automotive claims have historically been a manual process, where drivers retell their side of the story following a collision. These details are then shared with insurance companies, adjusters and, at times, even courts, to resolve claims and disputes. This process leaves room for ambiguity and human error, because, as we all know, there are two sides to each story. We also have to take into consideration the shock that results from a car crash – a driver might not remember or realize immediately the need to take photos of the damages or call the insurance company to begin the claims process.

Insurers can help drivers mitigate this complicated and stressful process by implementing advanced technologies, now available, that provide accurate, unbiased crash storylines. These narratives detail key findings such as the severity of a crash, where the vehicle was hit, the driver’s speed (before, during and after a collision), the weather and more. A claims adjuster needs this information to do his or her job. When this information is incomplete or inaccurate, the process takes longer, and costs increase for the driver.

Accelerating the Claims Process

In addition to enabling insurers to settle claims more seamlessly and accurately (preventing potential fraud), these technologies aid in settling claims earlier, paving the way for better customer experiences. For example, our solution automatically populates crash insights and reporting into a web portal or directly into an insurer’s claims management system, providing insurers with many details needed to quickly process a claim. By offering claims adjusters this information within 10 minutes of an accident, insurers are empowering them to help drivers quickly resolve their issues.

Placing Safety at the Forefront

The use of artificial intelligence and telematics has brought significant benefits to insurers and consumers. Several auto insurers are already using mobile telematics to assess risk and promote safer driving behavior, but the benefits don’t start and end there. In fact, one of the most important – and life-saving – aspects of the technology is the ability to detect crashes within moments of their occurring. Technology provides real-time notifications of a vehicle crash to quickly send roadside assistance to drivers when they need it most. By providing critical details like GPS location, time and driver identification, new crash detection solutions enable insurers to save valuable time in emergency situations, offering an added level of peace of mind. 

See also: Untapped Potential of Artificial Intelligence  

In some instances, the new technologies could also save a life. One instance is Discovery Insure, a South Africa-based insurer that uses our Crash Detector to send immediate roadside assistance and paramedics to customers following collisions and life-threatening crashes. One customer, Evelyn Sadler, received immediate attention after a taxi swerved into her vehicle, causing it to go airborne. As the distracted driving epidemic increases, causing 1.25 million people to die in road crashes each year, insurers can offer drivers technologies and solutions that can keep safety at the forefront and prevent many deaths. 

The future of the automotive claims system is already here, with several insurers realizing the impact this technology has on their bottom line. I’m excited to continue to watch this space grow – and hope that additional insurance organizations will quickly follow suit.