(Photo credit: Magnus Manske.)
It’s a good thing when vendors strive to meet the emerging needs of insurance carriers, but there’s also a tendency for vendors to cash in on the latest hyped technology that technology investors are obsessing about. Usage-based insurance (UBI) is one such fashion, exemplified today by auto insurance telematics programs. Aite Group’s new report, “Telematics and Usage-Based Insurance: Notable Players in an Evolving Market,” is designed to help insurers make informed choices as to their partners.
The explosion of interest in telematics and UBI has spawned a field of more than 200 vendors, according to Jamie Bisker, senior analyst, P&C Insurance, Aite Group. The report, authored by Bisker, assesses information gained from six leading providers of insurance telematics or UBI solutions. These include telematics/UBI package providers (total turnkey solutions) or those offering capabilities that include telematics devices, software, and services, or data services (aggregation, processing, and predictive analytics/modeling).
“The combination of broader consumer acceptance, more ubiquitous technology, and carriers’ recognition that they need not implement this technology themselves has created a groundswell of UBI offerings by third-party solution providers,” comments Bisker.
Aite Group reports that consumer awareness of UBI has tripled from 2010 to 2013, and that in the U.K., telematics-based auto insurance sales have increased by more than 60 percent since June 2012. As consumer acceptance grows, most Tier-2 and Tier-3 insurers will now have to partner with turnkey, end-to-end UBI package solution providers so as not to fall too far behind their Tier-1 insurer counterparts, Bisker cautions. “Insurers will need to forge new, practical relationships with telematics and UBI technology partners to provide data results, such as driving scores and gamification, directly to their policyholders as well as carriers,” he elaborates.
The challenge insurers face is that of choosing between vendors. Bisker says carriers should ask how long vendors have engaged in activities that are close to the UBI concept if not UBI itself, whether they have worked with telematics in general or specific applications such as commercial fleet tracking, and whether they can demonstrate that they are skilled at partnering with insurers.
“Carriers need to recognize that UBI opens a door that may not shut too easily, and would have negative PR connotations in some if not many cases,” Bisker says. “Vendors also have to meet the table stakes of providing more than just the discount mechanisms that UBI provides.”
Those vendors that support or leverage telematics in a broader sense can also provide integrated value-add capabilities, such as roadside assistance, teen or new driver feedback, and more economical driving tips, for example, Bisker explains.
The biggest caution Bisker would give carriers is that they should fall into the error of thinking of UBI as a simply a technological offering. “The entire concept of enabling consumers to actively reduce their premium based on empirically demonstrated changes in behavior is a major departure for the insurance industry,” he says. “Carriers must take their game to a new level and truly embrace customer-centricity as this and upcoming changes really do put the policyholder at the center.”
Longer-Term UBI Trend
Telematics is only the beginning of a larger UBI direction, Bisker suggests. “As we move towards a future that is increasingly consumer and policyholder centric, we are seeing carriers use mechanisms like usage-based insurance (UBI) and smart device apps that engage customers at much more personal level,” he says. “This trend will unfold and continue to feed the big data available to meet the needs and wants of business, and there will be few industries that exceed insurance in its use of these new types of data.”
Over the longer term, insurers will face the challenge of dealing with what connected sensor networks tell them about managing risk, according to Bisker. “Consumers will be generating thousands of bytes of temperature data from their homes, kitchens, hair dryers and home heating units every second,” he predicts. “Add to that the audio bytes from listening to the air handlers, refrigerators, and garage door openings and closings, or the video feeds from our phones and home web-cams every second.”
As such applications become widespread, the sources of data and its sheer volume will expand dramatically, rendering legacy approaches to data management obsolete, Bisker says. “The emerging capabilities of cognitive computing will be a primary tool in dealing with the big data that feeds new risk management mechanisms,” he asserts. “Cognitive computing, broadly described, emulates the pattern recognition capabilities of animals and more precisely, humans and can very quickly pick out pertinent information from the massive collections of bits and bytes created by sensors.”