Automotive insurance premiums have traditionally been determined by an individual’s age, type of vehicle, gender and driving history which has been used as a proxy to assess the risk associated with issuing a premium. However, by using telematics technology, the idea is to bypass such factors, and to measure risk on an individual basis.
The incorporation of new telematics technology in vehicles represents a fundamental shift in this industry. From on-board diagnostics to long-distance fleet management, a new dimension of data is being made available for collection and analysis.
As a result of this increased accessibility to accurate real-time driver and vehicle data, the industry is witnessing a rise of Usage Based Insurance (UBI). UBI provides numerous advantages to both insurance brokers and end-users alike, entwining the future of insurance with the development and adoption of telematics technologies.
Advantages of UBI
The value of real and accurate driving behaviour data is undeniable. In fact, UBI is already being trialled by various Australian insurance companies via black boxes, devices, mobile applications and manual reporting. From driving behaviour to car diagnostics, telematics provides an entirely new data set for insurance brokers to leverage.
An advantage of this type of data is that it enables insurance brokers to provide tailored premiums to a commercial fleet’s collective driving behaviours and usage patterns. Fleets with drivers that have been deemed safer by these new and more accurate devices may enjoy cheaper premiums that accurately reflect their driving habits, whilst insurance brokers obtain access to more profitable customers. Research conducted by EY suggests that this effective solution could reduce claim costs by 40 percent and policy administration by 50 percent, whilst simultaneously reducing acquisition and policy cost1 by substantial amounts.
The advantages of telematics also extends to the commercial driving fleets themselves. In an environment with multiple drivers and vehicles, telematics will provide insurance agencies and fleet management with a holistic understanding of their users and assets. For example, telematics can identify risky driving behaviours, such as increased acceleration or extended driving hours. Fleets that can demonstrate they employ safer drivers across the board could leverage this data to negotiate better insurance premiums.
Furthermore, telematics data has implications that go far beyond the actual driver. Data Loggers installed into vehicles can provide real-time diagnostics of the vehicle, so vehicle breakdowns can be predicted before they occur. By pre-empting maintenance and minimising downtime, insurance agencies and fleet management will benefit by saving costs and increasing efficiency. Devices like AA’s Car Genie, for example, can detect standard faults like degrading battery health, issues with the ignition coil, and failing exhaust gas recirculation.2
In having access to individual driving data, brokers are essentially able to create a win-win situation for both insurance companies and the end user. As UBI continues to develop and is more widely adopted, the information and data collected can be utilised to provide tailored insurance packages with extra add-ons that are bespoke to the customer. Brokers can subsequently leverage these custom insurance packages to attract commercial clients.
Implementation of UBI
The idea of UBI is definitely gaining traction with a recent study finding that four out of five consumers would be willing to share their driving data in exchange for a personalised insurance quote.3
During the infancy stage of UBI development and implementation, early adopters of telematics technology will gain a competitive advantage as they will be able to attract good risks by promising significant discounts. By acquiring fleets with safe drivers early, insurance brokers can promote customer loyalty and retention while offering increasingly tailored packages to end users.
On the other hand, those that implement at a later stage will experience a disadvantage as they will lack the statistically credible UBI data to make informed decisions when it comes to customer acquisition. This will ultimately result in less profitable premiums.
The use of telematics has already spurred changes in the motoring industry; and it will only continue to do so as the general population becomes more accepting of connected vehicles. By providing accurate data into an individual’s driving behaviour, brokers will be able to leverage this data to provide a better solution for both insurance companies and end users alike.
Fred is the Group Product and Innovation Manager at Intelematics Australia. With his extensive experience in the digital content and APP Development, Fred continues to drive growth via innovative products and development.
1. EY – Usage Based Insurance: The New Normal?