The use of telematics devices in insurance has been around for several years, with companies like Aviva (UK) and Progressive (U.S.) 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 cannibalize their current motor book. And so it seemed whilst top motor insurers own the 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 must 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 furor over this announcement from the insurance industry is understandable, and will require a fundamental change in how risk is underwritten. The immediate effect is that women will see their premiums 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 makes telematics more viable, if not the only way forward for motor insurers.
The industry has learned 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 turn-key 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.
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