European powerhouse Germany is the latest country to show an appetite for collecting driving data. But the global spread isn’t stopping there.
'Black box’ and ‘technology’ have become buzzwords for the insurance industry, with firms of all stripes seeking to incorporate more data into both their underwriting and claims processes to give insurers a better idea of customer risks.
The most famous success story of the category is telematics, which monitors how and where policyholders drive their vehicles.
In 2012 Aviva returned to the telematics product category in the UK with its Rate My Drive smartphone app. In mainland Europe, the desire to mine the wealth of telematics data is climbing, too.
An example of the European appetite for telematics is Telefónica’s mid-November announcement that it will bring the first telematics product to Germany, in partnership with car insurer Sparkassen Direktversicherung.
For the first time, customers in Germany will be able to sign up for usage-based motor insurance products, as well as gaining automatic crash notifications for emergency services and vehicle location tracking.
Francisco José Jiménez Bonilla, global head of insurance telematics for Telefónica, says the business began to target the UK and Germany after experiencing success with the telematics product it launched as a co-insurer in Spain.
“It was a very special product where Telefónica was not only the telematics provider for Generali, but also its co-insurer,” Bonilla explains. He says 60% of the risk and 50% of premium was attributable to the technology firm.
Bonilla says the UK and Germany were logical next steps as Telefónica’s other key markets in Europe, because it had ties to those countries through its ownership of O2.
However, he notes that the two markets differ in their attitudes towards telematics.
“In the UK, [we] are not the only company to have noticed that telematics is an interesting arena,” Bonilla says.
“But Germany is completely different because no-one had launched telematics there. We tried Germany because for us it is an important country and a place where, through O2 Germany, we have important links with insurers.”
Telefónica remains the only provider of telematics in the country, a situation that Bonilla says is down to a combination of issues.
“There are a lot of factors, including that in Germany the legal environment tends to ultra‑protect the consumer,” he says. “There are a lot of laws to comply with, and data privacy and security are crucial.
“The other interesting thing the German insurers told us is that there is not a big difference between the premiums that young people and other drivers pay, like there is in the UK. Conversely, that’s an important driver for insurance telematics in the UK – the special situation with the difference between these kinds of drivers and the high combined ratios of insurers.”
Usage-based vs claims-based
Dominique Bonte, vice-president and practice director at ABI Research, says the three countries which have historically accepted telematics as a product for insurance have been the UK, the US and Italy.
“Italy has a long history of telematics, both in terms of vehicle theft and in terms of the high number of accidents [that occur there],” Bonte says, adding that France has recently witnessed a number of new launches, while US telematics insurer
Progressive estimates its customer base at about 1.4 million.
Bonilla agrees: “In Italy, telematics is also very important, but perhaps the main business there is claims management, rather than usage‑based insurance.”
But that does not mean telematics is not equally popular in Italy – and beyond. For example, Jonathan Hewett, chief marketing officer at telematics provider Octo, which recently moved from Italy to the UK, says his business is witnessing growth across Europe, as well as Australia and South America – with each prioritising pricing and vehicle assistance differently.
“Historically, the European markets have very much been about stolen vehicle recovery and claims assistance and crash management,” he says.
“But the further west you go towards the US and UK, the seduction of being able to price more effectively has tended to be the market driver. And what we’re now starting to see is a coming together of those two capabilities.
“The UK and the US are starting to think hard about how claims and crash management services combine with pricing to improve the loss ratio of their portfolios, while markets such as Italy are thinking about how they can use different pricing approaches to target different segments.”
The role of smartphones
Wunelli founder Paul Stacy says that while roughly half of insurers outside of the UK have either active insurance telematics products or trials at present, the proportion will likely double in the next 18 months.
Stacy points to markets such as Australia, where Wunelli recently backed Insurance Box, launched with QBE, as an example of growth. He also says that smartphones will drive this growth.
“If you look at a market like Australia or New Zealand, personal injury doesn’t factor into comprehensive insurance – it’s a compulsory purchase when you buy road tax for your vehicle,” Stacy says.
“So if you take the personal injury benefits out, then the average premiums don’t support black box telematics type products. Insurance Box has taken the view that this is the future and wants to use the on-board diagnostics port for some devices. It has also got planned releases for smartphones.”
Using applications on phones will yield benefits for both insurers and consumers, he says.
“It’s just a much lower cost of data – you don’t have to pay for the SIM cards and there’s less resistance from consumers, because they choose to download it rather than an insurer forcing it on them,” he says.
Hewett adds that across Octo’s territories, the insurers seeing the most success with telematics are firms communicating with customers with the greatest clarity.
“If you tell me something about you [as a driver], I will give you some benefits back in the form of a better or cheaper product. Those insurers are absolutely clear about what they will and won’t use their customer’s data for,” he says.
“The age of average in insurance should be well and truly behind us, and we should be moving to an age where we can provide more personalised value propositions, offers and price to consumers.”
In the medium-term, then, telematics providers sound optimistic, but Bonte suggests they should make hay while the sun shines.
“There’s a big push in the automotive industry toward active safety, so your car may brake automatically if a deer crosses the road in front of you. By the end of the decade we might see the first forms of autonomous driving,” he says.
“The numbers of accidents might decline quite sharply at the advent of that and it will, to a certain extent, make insurance telematics redundant. If the computer is driving the car there’s not much point in measuring the driver behaviour because it will be something programmed and the way the car drives will be perfect behaviour.
“Although the auto insurers would downplay that, regardless of what the time frame is, it’s definitely coming down the road at some point.”
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