It is an accepted truth within the insurance industry: change is coming.
The industry can’t continue to watch claims expenditure increase, whilst competition and fickle customers drive premiums down, (all set against a backdrop of diminishing returns on market investments). UBI is attractive in many of the world’s more mature markets and we are seeing high levels of pilot adoption – much of it translating into commercial rollout.
UBI policies forecast to account for 100 million telematics policies generating in excess of €50billion by 2020, (Ptolemus UBI Global study 2014), the benefits of getting ahead of competitors is clear.
The fact is, consumers are not driving adoption of UBI. Almost all consumers are concerned with price, and whilst many UBI programs seek to reward with price, it clearly won’t be a zero sum game. If UBI is to work, the total pot of premium income required in any specific geography must ultimately, over a long period of time, offer a profitable combined ratio. It is axiomatic therefore, that in the long run, and in a world of highly penetrated UBI, some customers will pay more and some will pay less. Clearly in a market that is building – and where there is an alternative for the customer (i.e. a non-UBI product priced on the old proxies), insurers will initially have to invest to harvest the data required to change the model.
Telematics powered Usage Based Insurance will support pricing and claims forensic evolution but to simply view it as a solution to current industry challenges fails to grasp the greater opportunity.
Rewards of early adoption include: recruiting the best drivers through self-selection; (and this should not be underestimated – insurers adopting early are very surprised by the loss ratios they experience on this part of their book), more time to evolve a compelling customer proposition; the opportunity to build customer loyalty through improved interactions and valued engagement and the opportunity to gain a better consumer understanding through the building, aggregating and analysis of data.
The benefit driven by the ability to build “Big Data” capability is perhaps the least considered and yet most critical benefit of early adoption of telematics programs.
Driver behaviour data enables insurers to redefine their assessment of risk but when incorporated with other lifestyle data; a truly detailed understanding of a customer’s behaviour can be achieved. This will allow companies to deliver compelling customer propositions in to the connected future. The reality is that no one yet knows what that future might hold – we simply know it will not be what we expect, and it will be very different from today. It is a reasonable assumption though that data will sit at the centre of the opportunity. Insurance companies are ideally suited to be at the forefront of the data revolution.
The depth of understanding and insight delivered by the data collected by powerful telematics programs can act as a platform to support the corporate-evolution needed to thrive into the Connected Age.
Granular data output is essential to build compelling, lifestyle-integrated propositions but it also gives you the capacity to expand analysis to incorporate elements that were not considered or required at proposition launch.
When building the right offering, it is essential to place the consumer at the centre of the proposition. The greatest success will be achieved by the companies able to offer a wide range of services that extend beyond traditional insurance, improved customer experience and the ability to deliver benefits beyond simple premium reduction.
To understand the relative importance of collecting valuable data in preparation for the changes that the insurance industry will need to confront over the next 20 years, one should ask oneself the question…
Who will need to insure autonomous cars, the driver/passenger or the vehicle manufacturers?
IEEE predicts up to 75% of vehicles will be autonomous in 2040 Expert members of the Institute of Electrical and Electronics Engineers (IEEE) have determined that driverless vehicles will become the most viable form of intelligent transportation. They estimate that up to 75% of all vehicles will be autonomous by 2040. (Source: IEEE)
Organisations that adopt telematics propositions early will not only be able to tackle challenges faced by the industry in 2014 but can leverage the insights, (gained before their competitors), to develop the deep customer understanding and engagement required to thrive in the integrated Connected Age.
Contact the MyDrive Team to discuss how MyDrive’s Big Data capability can help you get the jump on your competitors and grow your business in to the integrated age.