Articles - Telematics- Data

 In a series of three articles Ivan Clarke is joined by Catherine Barton, Partner with Ernst & Young’s European Actuarial Service, Sherdin Omar, manager with Ernst & Young’s European Actuarial Service practice and Chloe Paillot, Senior Manager with Ernst & Young’s European Actuarial Service practice, give an insight into telematics insurance

 Following on from our first article which explored the technology behind telematics insurance products, we continue our three-article series exploring telematics insurance from the perspective of the insurance customer. In this second article we focus on the plethora of data challenges posed by telematics insurance products.

 Once upon a time there was a customer...

 “Marketers would consider me an Innovator, and I am indisputably a technophile: my home is bursting with gadgets designed to transform my life. So, when I saw a new product being launched a couple of years’ ago that could revolutionise my current car insurance policy, I was immediately drawn to it.

 “I’m usually so engaged with the products I buy, but that wasn’t previously the case with my motor insurance policy. Each year I paid my “tax” of £500 or so, which felt like quite a price for the luxury of driving just a few miles each week to take the children to the swimming pool, do the shopping on a Saturday and maybe nip round to some friends’ a few miles away. I heard little from my insurer from year to year; my driving record is clean so I’ve never had to make a claim.

 “This new insurance policy priced on how, when and where I use my car seemed so liberating. My wife and I signed up to one of these new telematics insurers as soon as each of our policies came up for renewal. For me, all the data and information they provided about my journeys was fascinating. I loved the experience of the interactive online dashboards, and monitoring my driving style to see if I could continually improve how I drive; it became something of a personal challenge. My wife was less impressed as I pointed out rather too gleefully that her driving style is more dangerous than mine.

 “As my telematics policy renewal date approached, I decided to shop around to see if any of the flurry of other insurers who had started offering similar telematics insurance policies could better my previous insurer’s quote. Little did I realise that what I thought seemed a good idea would be riddled with challenges: each insurer has its own technology and records different information about where, when and how the car is driven. Not only that, but I wasn’t able to provide my data to other insurers to let them quote based on my driving behaviour, so it was back to the same generic question set such as ‘number of years in the UK’ or my marital status and it felt that transferring telematics insurers would be like starting again.”

 A brave new world

 Telematics insurers are undoubtedly pushing frontiers. Not only has motor insurance jumped on a generation in technology terms, but it has also created potential for motor insurance to become much more bespoke with prices and products being tailored to the individual’s driving behaviour as opposed to a set of generic characteristics. Our “tale of a customer” gives just a flavour of the challenges in play as insurers and customers shift from the old, well-understood, world of motor insurance where risk was explained by a common set of rating factors, to a brave new world where risk is understood through a mass of detailed driving behavioural data. This represents a seismic shift for the market – or at least the potential for one – as insurers and customers come to terms with what telematics insurance means for them.

 Recording and transmission of data

 As we discussed in our previous article, telematics technology varies from insurer to insurer, so it is no great surprise then that the data collected and used by each insurer will equally be different. Data – and its collection, transmission, storage, ownership, usage and so on – therefore poses significant challenges in moving telematics from a niche-approach within the market to a mainstream option with which savvy customers will want to engage.

 At a basic level, the data each telematics box collects is different. Most providers will capture information on location of the vehicle, speed, acceleration, braking, collisions and so on, but the actual data collected will not be the same. While some insurers will price based on the same data, for example where they are underwriting as part of a telematics broker panel, others will be doing their own thing.

 Let’s consider the frequency with which data is recorded and transmitted to illustrate this. Current technology varies in its frequency of data collection: for example, some records information at 30 second intervals, others much more often at 1 second intervals or alternatively as a function of distance travelled rather than elapsed time. In turn, this information is transmitted with varying degrees of frequency.

 In the event of an accident, the amount of data collected increases substantially, with the frequency of transmission occurring, in some cases, every few seconds. Additional information on the front, side and rear registered G-force on the vehicle gives the insurer a real-time understanding of an accident, including its severity and the likelihood of a bodily injury claim arising from it.

 Collecting this new data comes with real challenges such as data storage. According to Wunelli (a provider of Telematics solutions) a vehicle is driven on average 60-90 minutes a day, which generates about half a megabyte of data a month per vehicle. This does not appear to be excessive but over a collective portfolio the volume of data being produced and stored could easily become overwhelming.

 Also as each insurer must pay for ‘airtime’ for the telematics device to transmit the data, it is key for an insurer to find the right balance between the cost of continuous data transmission and having sufficient data to capture the driver’s behaviours.

 But to-date there is no real way of knowing exactly who is driving the car so maybe the motor insurance industry should begin to consider changing the insured asset from being the policyholder (as it is now in the UK ) to being the vehicle (similar to the US).

 Insurers – Changing business models

 Clearly telematics creates data in volumes that analysts have previously only wished for, and the opportunities to make use of it are wide-reaching:

 Pricing - capturing driver behavioural analysis such as which individuals accelerate and brake hard, or information on which road types people normally drive, insurers should be able to reduce their reliance on post code as a rating factor.

 Claims - the information gathered in the event of an accident is invaluable to a claim handler as it will highlight exactly how severe the accident is, and can help to establish fault as well as helping produce more accurate case estimates for claims sooner. It can also help reduce fraudulent claims by having a better understanding of whether an incident could generate a whiplash claim. The next evolution could be to include a camera to record the number of passengers in a car at the time of an accident to reduce the number of ghost claimants per claim.

 The claims operating model can also become much more customer focused in that the insurer can notify the emergency services of severe accidents as soon as they happen, saving valuable minutes and therefore lives, or provide reassurance to distressed drivers that help is on the way following an accident.

 Reporting - There will be a need to design and produce new reports and KPIs. This will lead to significant IT infrastructure development and re-education of staff (at all levels) to understand what information the data can contain and on how to interact with their customers.

 Product development – Most current telematics providers are able to feedback information to the policy holder immediately via an online portal so insurers can actively enhance the product by creating multiple customer touch points and offering rewards / fines for demonstrating good / bad driving behaviour. In extreme cases the insurer could actively cancel the policy, as has already been the case, if dangerous driving is continuously detected.

 Ultimately the ability to move away from the humdrum of standard rating factors to analyse huge volumes of data in whatever which way they choose is enough to make insurers’ eyes sparkle with glee.

 But what does the customer want?

 In truth, the insurer can generate numerous useful customer touch points that help bind the customer to the brand and product. It is not in the insurer’s best interest to allow the individual access to their own data as it prevents the individual from switching insurers and allows insurers to subsidise the high installation costs associated with fitting a telematics box after the car has been manufactured.

 In the long run, as car manufacturers start to incorporate the box at point of production, the need to subsidise telematics acquisition costs with renewals will not be as critical. This will also give a relatively easy route to market for motor manufacturers to enter the motor insurance landscape should they wish to do so.

 Overcoming the challenges of data storage and ownership

 Should a centralised data hub exist? Should a public or private body start to build up a Drive score in a similar manner that credit agencies have established individuals with a Credit score? That particular Drive score could become the key criterion for the purpose of purchasing motor insurance. And like Credit score, would the opportunity to have a Drive score have other potential off-shoots / uses? Many experts within the industry think this will eventually happen but there are several significant stumbling blocks.

 Firstly it’s getting the regulators and information commissioners to understand the data with a strong focus on data privacy. Robust controls around the security and integrity of the data need to be ensured. Until the various government and public bodies can agree on what can or cannot be shared then insurers will have no choice but to continue to treat GPS data as personal data.

 Secondly, the industry players will have to agree to share the collated data with the centralised data source / independent organisation who can build up a Drive score. This will help to level the playing field across insurers and help encourage new start ups to enter the market. It will also build up greater public transparency of individual’s driving behaviour (are you in the top ten percentile of the nation’s best drivers?).

 A central data hub makes economic sense if economies of scale can be reached and if it helps to stimulate more competition. But should it be a public organisation or private organisation along the same lines as credit companies (e.g Experian, Call Credit)? Without a standardisation of the data collected and the ability for insurers to use that information it will limit insurers from being able to create new personal business quotes.

 The wealth of information that telematics brings will aid insurers to better price and select risks at renewals.

 This should drive down the cost of insurance for careful drivers. But until a standardised driver score or customer accessed driving history database exist, it will be difficult for a driver to shop around for telematics providers and take credit (or not) for their driving experience. The insured is, in effect, “locked” to his/her telematics provider.

 In a market which is developing quickly, technology will continually advance to refine the information collected, so it is not unreasonable to assume that the data collected will also continue to evolve.

 ...and the customer lived happily ever after (almost)

 “It’s ten years now since I took out my first telematics policy and how things have changed! My driving record lives in the Insurance Cloud and I grant access to whichever insurers I want to provide me with an insurance quote. Getting an insurance quotation is so much easier now – I don’t even have to type all my details into a website!

 And then the industry and competition commission finally agreed to standardise the data. So now it’s easy to switch insurers, everything is linked to our driving licence. I heard a rumour that they are planning to make our licences the key to starting a car, so any speeding contraventions will add conviction points directly to my licence and the car will not start if the MOT or insurance is invalid.

 “The most galling thing is that my wife got interested in the on-line portal data too and now her driving record is better than mine and stops me from driving her car.”

 The third and final piece in this series of articles will appear in the April edition of the Actuarial Post Digital Magazine which will be online 25/04/2012.

 This article first appeared in the March edition of the Actuarial Post Digital Magazine which can be viewed clicking the cover below.