Tag Archives: telematics

Personalized Policies, Offered via Telematics

Mass individualization. Is it an oxymoron? Or a new perspective when attracting customers? With a growing number of connected cars on the road and 74% of new vehicles featuring advanced driver assistance systems (ADAS), it’s becoming easier to see the differences between policyholders. Increasingly, insurance carriers can understand how and when people drive, as well as the ways vehicles themselves interact with the road and their drivers. The growing variety of advanced safety features affect driving patterns, adding a layer of complexity as carriers navigate pricing, claim frequency and severity. So, how do insurers attract and retain customers when faced with so many new variables, while at the same time delivering a personalized experience to meet growing customer expectations? 

In a word — telematics. Telematics can unlock an insurer’s ability to:

  1. Better identify and reach high-intent customers
  2. Offer consumers new experiences that meet their expectations
  3. Deliver superior customer service in a way that ensures prospective customers feel confident in making a decision

Leveraging Telematics Data to Reach the Right Customers

High-intent customers can arise from common scenarios, such as the purchase of a vehicle in a state where securing insurance is legally required. In fact, for 29% of customers, a new car is what prompts insurance policy research to begin.

To catch consumers’ attention during this critical point, carriers can gain valuable, personalized insights from connected cars, given that the latest vehicle models can chart and share data at every turn (not to mention each brake, acceleration and more). Equipped with this data, carriers can better determine which customers to target and what incentives to offer them up-front, helping customers increase confidence in their decisions and potentially improving carriers’ bottom line. 

Going a step further, by having this information readily available at the time of quote, carriers can offer competitive pricing personalized to how an individual drives and to the vehicle the person is driving. This eliminates the need to first educate the prospective buyer about the plus side of usage-based insurance (UBI) and then make the buyer wait weeks or months to learn what discount he or she is being offered. Accessible connected car data can help carriers stand out from the competition, win a customer and simultaneously reduce marketing costs. Because about one-quarter of insurer marketing/customer engagement departments spend all of their marketing budget and time on customer acquisition, these cost savings are critical. 

Offering New Experiences to Attract New Drivers

Today, most consumers navigate a variety of services digitally without a second thought — from filling prescriptions to buying groceries to banking — and have come to expect a seamless interaction with almost every brand. The insurance industry is no exception. In fact, according to McKinsey, customers cite convenience as the second-most-common reason for switching brands. As a result, insurance providers may want to adapt to meet customer expectations. The good news is that more than half (51%) of auto insurance marketing professionals list “designing new customer experiences” as their top priority, behind acquiring customers and improving the claims experience.

While driving may be down over the past year, accidents are still occurring, and have actually gone up in severity, possibly because less traffic encourages faster driving. By using telematics, carriers are not only able to detect a crash and provide on-the-scene assistance, but can help resolve a claim faster. These are the types of services consumers are looking for. In fact, 47% of consumers said access to telematics-enabled claims submissions would make them more likely to purchase usage-based insurance. Intuitive, personalized experiences drive so many of our daily interactions; the same should be true for submitting a claim. 

See also: Telematics Consumers Are Ready to Roll

Going Beyond Digital to On-Demand

Just as it has in other industries, digital adoption has allowed insurers to speed and improve existing processes, enabling inspections, appraisals and repair estimates virtually. Beyond this, AI is creating dynamic experiences such as near-immediate total loss vs. repair decisions, repair vs. replace-parts decisions and injury prediction. AI also helps underwriters identify risk at the point of quote. The evolution of data analytics and AI guiding the estimating process will only accelerate efficiencies in operations and customer satisfaction, allowing policyholders to participate in the claims estimating process. Research shows that 36% of customers are dissatisfied with the initial claim filing process, highlighting the significant opportunity for improvement.

For example, by using telematics data that detects an accident, the carrier can reach out to the driver in the way the person prefers — via text, in-app or through a phone call. The consumer can then decide when and how to respond. From there, the driver receives a link so her or she can take photos of the damage, upload the data, send it back to the carrier, receive a list of nearby repair shops and talk to a live person if there are questions. These improvements expedite the claims process and create a better customer experience: one that is on-demand and mimics interactions consumers have come to expect from other industries.  

Research already shows that 90% of current UBI customers are satisfied with their program, but carriers can take it a step further by using gamification to offer discounts while maximizing the convenience of app resources and more. This concept has shown success in a wide range of industries, helping companies achieve goals for creating awareness, increasing sales, simplifying complex processes and more. The interest, and opportunity, to expand to meet customer needs clearly exists, but to truly take advantage of UBI beyond pricing it is key that carriers differentiate to attract and retain customers. 

Carriers can begin to develop a strategy that allows them to innovate, reimagine the way customers see them and, most importantly, make offerings more personal and more appealing. The typical auto insurance customer requests three carrier quotes during the buying process. When the decision day comes and you’re among those three carrier options, these strategies can help your quotes stand out.

And, now that you’re more attuned to your customers’ expectations and their specific needs, you’re putting yourself in a position not just to win on decision day but to increase the likelihood of retention, creating brand advocates who may remain loyal for a lifetime.

Despite COVID, Tech Investment Continues

Insurers will continue to experiment with emerging technology in 2021, despite the challenges of 2020. When the COVID-19 pandemic hit, many insurers paused their 2020 innovation plans, emphasizing digital workflows and cost control at the expense of emerging technology pilots. Heading into 2021, technology priorities for many insurers, especially those in the property/casualty space, are similar to those of 2019.

The U.S. is still in the midst of the pandemic, and some insurers are anticipating lower premium revenues for the coming year. In spite of this, insurers are investing in technologies like artificial intelligence and big data, though some are narrowing the scope of their innovation efforts for the coming year.  

Understanding Emerging Technology Today

Insurers typically take a few main approaches to emerging technologies. Early adopters experiment with the technology, typically via a limited pilot. If the technology creates value, it’s moved into wider production. Insurers that have taken a “wait-and-see” approach may launch pilots of their own.

Novarica’s insights on insurers’ plans for emerging technology are drawn from our annual Research Council study, where CIOs from more than 100 insurers indicate their plans for new technologies in the coming year.

No insurer can test-drive every leading-edge technology at once, and every insurer’s priority is a result of its overall strategy and immediate pressures. Still, at a high level, several industry-wide trends are apparent:

There is big growth in RPA; chatbots continue to expand. More than half of all insurers have now deployed robotic process automation (RPA), compared with less than a quarter in 2018. Chatbots are less widely deployed but on a similar trajectory: from one in 10 in 2018 to one in four today.

AI and big data continue to receive significant investment. These technologies take time to mature, but it’s clear insurers believe in the value they can provide. More than one in five insurers have current or planned pilot programs in these areas for 2021.

Half of insurers have low-/no-code capabilities or pilots. These types of platforms are relatively new but have achieved substantial penetration in a short time. Early signs indicate they could become a durable tool for facilitating better collaboration between IT and business experts.

Despite continued tech investment, 2021 might be a more difficult year for innovation. Insurers’ technology priorities have generally reverted to the mean — more so for property/casualty than for life/annuity insurers — and technology budgets for 2021 are within historical norms. Still, some insurers are paring down pilot activity in less proven technologies, like wearables, to maintain their focus on areas like AI and big data. Technologies with substantial up-front costs, like telematics, may be harder to kick off in 2021. 

See also: Technology and the Agent of the Future

How Emerging Technology Grows

Emerging technologies have widely varying rates of experimentation, deployment and growth within the insurance sector. Their growth rates boil down to a few key related factors:

  • How easily the technology is understood.
  • How readily it can be deployed and integrated with existing processes.
  • How clearly the value it creates can be measured and communicated.

At one end of the spectrum are technologies like RPA and chatbots. These technologies create clear value, are readily added to existing processes and are relatively easy to deploy. As a result, insurers have adopted them rapidly.

Artificial intelligence and big data technologies require longer learning periods; sometimes, they require business processes to be completely reengineered. The technologies create value for insurers but have grown more slowly because they take time to understand and integrate.

Drones, the Internet of Things (IoT) and telematics can create new kinds of insurance products or collect new kinds of information. These can also create value, but their growth remains slow because developing these technologies may require orchestration across several functional areas, and they can be costly to ramp up.

On the far end of the spectrum are technologies like augmented and virtual reality, blockchain, smart assistants and wearables. Most of these technologies don’t yet have established use cases that demonstrate clear value, so it remains to be seen whether they will be adopted more widely.

Using Emerging Technology

One key insight from Novarica’s study is that technologies that integrate readily to existing processes can grow more rapidly than technologies that require new workflows to fully use. This observation comes with a few caveats for both insurers and technology vendors.

Insurers sometimes fall into the trap of “repaving the cowpath” — they adopt new technologies but integrate them into their existing (inefficient) business processes. Doing so means they can’t get maximum value from their investment. Ironically, it’s usually the shortcomings of legacy technology that have made these processes cumbersome in the first place.

It’s easy to understand the value that technology creates when it integrates with an existing process and can be measured with the same key performance indicators (KPIs). It’s much harder to create a new process enabled by new capabilities, train employees to execute it and demonstrate that the new way is better than the old way. Yet getting the most out of emerging technologies often requires rethinking how business might be done.

See also: 2021’s Key Technology Trends

For their part, vendors should focus on the value their products create and the problems they solve, aligning them to insurer needs. It’s not enough to use a new technology for its own sake, and using new tools sub-optimally may make them seem less effective. Vendors should coach their insurer clients through best practices and help them understand how their tools can ease, change or make obsolete existing processes.

At its core, insurance is a simple industry focused on connecting those exposed to risk to capital that can defray potential losses. At the center of that value chain are insurers, that continue to explore new technologies to better understand their risks, sell more and operate more efficiently. Even in uncertain times, insurers are innovating.

Telematics Consumers Are Ready to Roll

At a time when consumers and business owners are focused on cost efficiency more than ever, telematics solutions offered by insurance carriers present a prime opportunity for customers to leverage their driving data’s potential to enable discounts and operational savings. 

Nationwide’s latest Agent Authority survey found that 65% of consumers would be willing to allow telematics to capture their data if it provided an insurance premium discount, but an overall lack of knowledge on the solutions and benefits available to them is a major hurdle. On the flip side, middle market business owners demonstrated a high level of awareness of telematics and support for investing in the technology due to its safety and operational impacts but could use more guidance on which solutions fit their needs and how insurance ties in. 

The results emphasize the important role carriers play in offering innovative but easy-to-implement solutions, in tandem with robust sales and marketing resources for distribution partners like agents and brokers, to help drive home the benefits and instill confidence in customers in using telematics.

Lack of telematics knowledge a barrier for consumers

Just over a quarter of consumers (27%) surveyed say they know what telematics is and over half agree lack of knowledge is a key barrier to using the devices. They’re also fairly split on how much they think telematics could save them each month. 

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Notably, while 67% of consumers have not discussed telematics with an insurance agent, it’s clear that they’d greatly benefit from an agent’s counsel. Consumers who say they don’t use telematics were likely to also hold key misconceptions about costs with using the devices. A quarter (24%) said they believe there’s an added cost to using telematics, and more than half (57%) believe using a device could make their rates go up. 

In fact, in 2020, drivers enrolled in our usage-based insurance programs are saving an average of more than 20% compared with a traditional policy. By 2025, we project usage-based programs will account for 70% of personal lines new business. 

Through innovative partnerships with companies like Cambridge Mobile Telematics, Nationwide is also delivering new features like monitoring and informing drivers of their distracted driving risks – a major concern of 42% of consumers. 

Telematics can solve business owner challenges

In addition to managing their business, many middle market business owners face added concerns related to the safety of their drivers and fleet vehicles. They also experience 7.5 accidents per year with their fleets, so it’s not surprising their top concerns include distracted driving among employees (83%), rising cost of insurance for fleet vehicles (82%), safety of drivers and accidents with business vehicles (81%) and knowing the location of their vehicles (76%). 

Interestingly, business owners may overestimate difficulties of implementing telematics. Many cited the costs of investing in telematics (35%) and the time it would take to install the devices (21%) as top barriers for using the solutions. The majority of respondents don’t see costs as an issue, however, with 52% of business owners saying they’d pay $30 or more a month per vehicle to ensure safer driving and 87% saying the benefits outweigh the financial costs. 

See also: The Evolution of Telematics Programs

Telematics can address many of fleet owners’ concerns, and the opportunity is ripe for carriers and agents to change conversations with customers about telematics from an “add-on” perk to what it really has become – an essential tool for managing a business. With nine-in-10 business owners agreeing telematics improves driver safety and improves operations, providing clear information can give them a full view of telematics’ advantages for their operation. 

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Nationwide’s Vantage 360 Fleet program is available at no cost to small commercial auto customers and delivers valuable business insights based on a number of driving factors, including speed limits, hard braking and acceleration, phone distraction and location and trip history. The technology is simple and takes just a few minutes to install. Vantage 360 Premium Partner Program brings comprehensive fleet management and GPS tracking to middle market business customers.  

Consumers, businesses agree telematics benefits outweigh concerns

The survey found many consumers (25%) and business owners (37%) who don’t use telematics view data privacy as a barrier but agree that the advantages overshadow those concerns when they’re receiving some sort of discount. 

The results reiterate the need for today’s telematics programs to make it very clear to customers how data is being collected and used, and the benefits customers can gain. The driving data collected by Nationwide is used for insurance purposes only and never sold to any third-party entities. 

Carriers have an opportunity to step up in addressing these challenges with partners and customers, supplying expertise and resources to better educate drivers on how telematics data is tracked and used and arm partners with resources to help dispel common misconceptions customers may have about telematics. 

See also: Driving Into the Future of Telematics

About the study: 

Initiated in 2020, Nationwide’s Agent Authority research seeks to understand what business owners and consumers value when buying or renewing insurance policies, explore the different challenges each audience faces around insurance, gauge perceptions of the economy and how each audience is managing uncertainty and find out the actions business owners and consumers have taken as a result of COVID-19 and the conversations they’re having with agents. Previous Agent Authority research reports include: Agent-customer relationship; Small business owner needs and challenges; Middle market business owner needs and challenges; Agents’ top concerns through the pandemic; Consumer and business owner cyber preparedness.

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.