The use of telematics devices in insurance have been around for several years, with companies like Aviva (UK) and Progressive (US) taking on the pioneer role in early 2000s. But there have been many dissenters. One large insurer told me that they didn’t see the point in telematics offerings and it would cannibalise their current motor book. And so it seemed whilst top motor insurers own majority of the market, we would see little change in Europe.
Then along comes that pesky driver of change – regulation. The European Commission has already mandated new cars manufactured in Europe have to have a black box device. This is part of a pan-European initiative called e-Call which links up emergency services across the region. So if you are holidaying in France, in a new car, and have an accident, your telematics device makes a call into the local emergency services. The idea being that quick responses to accidents will save lives.
Earlier this year, came another directive. The European Court of Justice ruling on banning the use of gender in insurer pricing is to come into effect in December 2012. The furore over this announcement from the insurance industry is understandable and this will require a fundamental change in how risk is underwritten. The immediate affect is the women will see their premium rise, by as much as 50%, which has consumer groups up in arms.
And so we come back to the topic of telematics. The convergence of these factors make telematics more viable if not the only way forward for motor insurers.
The industry has learnt much about telematics since the early part of the last decade. There are a variety of ways to gather data from black boxes, and not all data is required to be kept and stored. Consumer attitudes, whilst still varying regionally, seem less hardened to the idea of being monitored. There are several companies offering turnkey solutions to insurers – from installing the device, collecting the data and providing the analytics.
Perhaps the biggest shift is from what has been called pay-as-you-drive to pay-how-you-drive. The first model based on utility pricing can’t take into account the difference in risk between young and experienced drivers. It doesn’t take into account the different risk of country roads and highways. Behavourial based pricing is the evolution from the utility model. It’s now the right time to review telematics. Niche brokers and insurers will look to use this proposition as a market differentiator, and the large motor insurers will be required to review telematics to be able to meet impending legislation. Celent plans to write more on this in the summer.