This post is also available in: Français (French)
Re/insurer Swissre regularly publishes notes of analysis or expertise on its areas of specialization. They recently published a study (Unveiling the full potential of telematics – an Italy case study) on the evolution of telematics, these connected objects embedded in cars. This study follows a more general and similar one published at the end of 2016: Telematics – Connecting the dots.
The starting point is simple. Italy has the highest rate in Europe of insurance offers based upon these famous telematics. One can find there the highest penetration rate of these connected objects in the vehicles. This report is intended to provide feedback and, more importantly, to consider what options could be extended to other countries.
Level of adoption
The first observation concerns the necessary curve of adoption of this type of technology and Swiss Re shows that a significant delay (more than 20 years is necessary before it can take full advantage of the potential). Italy is quite close to this, as the first trials began in the early 2000s.
Italy now accounts for nearly 15% of the total number of auto insurance contracts covered by these connected items. This makes it possible to reach a significant threshold, from which one can decently envisage advanced communications vehicle-infrastructure, or even vehicle-to-vehicle. This means that 2 vehicles could mutually warn themselves from hazards / traffic jams on the road in order to automatically recalculate a route. These elements prepare the next step (ADAS: Advance Driver Assistance Systems) which accelerates the advance towards autonomous vehicles. There is a growing consensus that the development of these elements could ultimately significantly reduce the risk of accidents on roads. For the record, these are now 90% caused by human mistakes.
In purely statistical terms, Italy is clearly ahead: nearly 5m of vehicles concerned, compared with 3.3m in the United States (for a much larger total volume) and just 0.6m in the United Kingdom. Moreover, most of the connected objects are permanent, whereas in the United States for example, they are most often removable and connected objects for a limited time only.
Triggers of adoption
The report focuses on the factors that explain market penetration. Quite logically, it highlights a correlation between the rate of premium reduction observed and the penetration rate. In other words, the acceptance of this type of object exists only if the promise of a premium reduction is announced by the insurer. On the other hand, it is interesting to note that penetration is equivalent across all age groups. It is amazing in two ways:
- For young people, more fond of this type of offers, and who can earn big on premiums. Insurers are generally quite cautious and have therefore had to make a significant effort on prices and risk estimates;
- For the older ones, who already have attractive rates and are naturally not very adept at these technologies. Insurers therefore had to promote close to 50% of premium earnings!
Moreover, the authors show the greatest penetration on contracts with the highest premium. This is due in particular to an interest in the theft guarantees (additional services in case of theft and reduction of premium on this guarantee) that is stronger than on other vehicles. The same comment can be made regarding the age of the vehicles, the strongest penetration is on the most recent vehicles.
As we saw earlier, the interest for customers is at the level of the premium. On the insurers side, there are many advantages in structuring the data that are available to them. This improves the procedures that will exploit this data in an optimal way.
This data collection currently applies mainly to mileage. UBI (Usage-Based Insurance) contracts are therefore mainly PAYD (Pay As You Drive) contracts. There are sometimes distinctions between the kilometers made during the day / night or during the week / weekend. Today, this represents a quarter of the contracts based on connected objects.
The next target is the PHYD (Pay How You Drive). These contracts are not as developed today as the previous ones, but their rise is faster. The collection includes information on speed, braking, weather related, for example.
In both cases, the collection goes hand in hand with a promise of reduction of premium made upstream on the basis of declaration with readjustments for the following years if necessary.
Example of Italy to be one of the most advanced !
However, according to countries, not all customers are willing to accept this type of intrusion. If Italy is ahead, France and Germany, on the other hand, would be more reluctant.
Indeed, the current offers may not yet be sufficient to bring value and convince reluctant customers. Insurance companies still have cards to play to make the best use of this information and propose offers at variable prices depending on the distance traveled, with incentives to reduce routes or improve driving, etc.
As for added-value services, the preferred services for customers are anti-theft options, vehicle location or help for claim’s registration.
Services offered by embedded connected objects / telematics
The study presents a list of opportunities for added value services through telematics throughout the “journey of the customer”. Among other things:
- During driving: Alerts on speed or weather conditions, vehicle position control in a secured area (to ensure the protection of young drivers or senior drivers), suspicion of theft when an atypical driving style is detected, etc.
- In the case of an accident: the Italian market is considered to be far ahead of this case by setting up an advanced user experience. For example, a proactivity by an outgoing call to the insured when a disaster is detected to accompany him in the procedures or the sending of relief according to the gravity. Another example is the complete dematerialization of the declaration of loss by automated e-observation, etc.
- At the stop / parking: location of the vehicle, alerts in case of movement or damage, etc.
Value added for insurers
Three elements are highlighted in this case study:
- The increase in the number of interaction with the insured thus improving the proximity with the insured
- Creation of insights about risks and clients
- Improved profitability through risk selection and specialization of offers
On this last point, the study relate certain elements of Matteo Carbone which are eloquent and show a gain of 0.8 pts of result thanks to the implementation of telematics.
Some details are given on five main axes:
- Risks selection: : Anti-selection at the time of subscription, provision of data to refuse risks on certain criteria more accidental than others.
- Risk / individualized pricing: Ability to add information obtained from these objects in increasingly fine and precise pricing formulas. At this stage, many variants may exist, at the option of insurers
- Value-added services: All services beyond pure insurance that meet the needs of users at the time and place they need them
- Control of technical result: rapid detection of claims, better description of claims, better orientation towards the right providers, etc. Best practices in the Italian market show a 5% improvement in claims management time and a 6% reduction in the amount of compensation on portfolios affected by telematics. It also reduces the risk of fraud.
- Loyalty and behavior improvement program: through gamification procedures, it is possible to offer rewards in the event of behavioral improvement and risk reduction. For example, cash back for VitalityDrive in South Africa. In this case, it is essential to make pricing transparent to encourage compliance with rules to improve tariffs or obtain rewards.
Evidence of improvements in the Italian market
Some very specific examples are presented. For example, on a comparable portfolio (drivers aged 18 to 25 in Naples), the frequency of claims is 6.08% with connected objects and 8.31% without connected objects. This represents a reduction of almost 20%.