Moving Forward with Telematics

In the next several years, the auto insurance landscape will change as insurers move towards using in-car telematics devices to offer a new world of rating and underwriting to consumers. Recognizing this trend, the Insurance Brokers Association of Ontario (IBAO) has entered into a partnership with Quindell Portfolio PLC that will allow IBAO to take the lead as a provider for consumers with whom it already has a long-standing business relationship.

Drawing on the strong relationship that IBAO member brokers have with their customers,

it is hoped the new partnership will shape the way the market evolves. This teaming is further designed to position brokers and their customers at the heart of usage- and behavioural-based insurance (UBI and BBI), a move expected to provide significant benefits to consumers, brokers and insurers alike. 

WHAT IS VEHICLE TELEMATICS?

Vehicle telematics includes four main components. The first consists of an in-car “black box” that captures key vehicle data that is then used in insurance product development and pricing; second, there is a behind-the-scenes interface of services that collect, gather, interpret and present the data to those authorized to use it; third, a variety of models and processes exist that insurers use to develop specific insurance programs and rates; and, last, there is a wide array of web services that can be used for outbound communication with the driver.

Together, these components enable an insurance carrier to easily develop products and pricing to match the driver characteristics of target market segments. Simpler models involve using the data to create UBI models that reflect actual driving data rather than using estimated driving data from an application form. Examples include insurance based on the actual miles driven, or the time of day the vehicle is used, which can then easily be extended to where the vehicle is driven. In this way, rating is expanded to better reflect the actual usage of the vehicle based on the actual exposure.

More advanced models extend rating into BBI, where an underwriter can tie specific driving behaviour(s) such as speed driven, hard braking, rapid acceleration and cornering patterns into a rate category. Taken one step further – and into the realm of public policy – brokers can use this information to encourage change in driving patterns.

For example, ingenie, a Quindell customer in the United Kingdom, ties the information collected to programs and actions that actually improve road safety and prevent accidents for its customers. These benefits include free driving lessons and remedial driver education for young drivers. It is this space that IBAO believes its brokers need to own.

Customer benefits are significant, both immediately and over the longer term. In the case of ingenie, it has seen consumer savings on premiums of as much as 70%, with premium savings of 30% being common. Consumers also benefit from changes to their driving skills, which can help reduce the number of accidents and avoid injuries from the outset.

Complementary services can also create additional benefits. For example, in-car devices can be used to unlock doors, perform vehicle diagnostics and alert customers to vehicle problems. As well, it is possible to provide driver feedback.

Telematics provides tremendous benefits for all mainstream drivers, with enhanced opportunities for many unique driver segments.

WHAT ROLE WILL IBAO PLAY?

The IBAO/Quindell partnership represents the first in which a broker association has committed to purchasing a full solution on behalf of its members. The black boxes, network and data management services, and call centre support and activity will all be clearly customer-centric and broker-driven.

The partnership also represents a clear focus on respecting consumer preferences for data privacy and portability – in that the driver data is owned by the driver, not the insurance company. This means that if a driver chooses to switch insurers, the driving data moves with the driver to the new insurer. As a result, the new insurer can use that previous driving data to develop appropriate rates, not start over without that data.

Solutions in other countries, particularly in the United States, have focussed almost entirely on the concept of UBI, applying a discount for sign-up, or a discount based on collecting data for a set timeframe. Many other capabilities are also inherent in the IBAO model.

The IBAO, through its wholly owned subsidiary Independent Broker Resources Inc. (IBRI), will work in conjunction with multiple insurance carriers, both large and small, including those that could not operate a program themselves because of market or size constraints. The broker will be able to offer drivers the option of telematics-based solutions – or non-telematics-based solutions – underwritten by several insurers that will provide variety in both price and in service offerings.

This means that if one insurer is offering a mileage-based solution while another is offering a time-of-use solution, the broker can match customer needs to those individual offerings.

THE ROLE OF QUINDELL SOLUTIONS

Quindell Solutions has partnered with the IBAO through IBRI to provide the in-car devices and also to co-ordinate the network services, including data collection, broker presentation portals and communications to drivers. Quindell will work with the IBAO to deliver a best-in-class value proposition and experience for consumers, and will work with insurers to broaden their offerings to maximize the benefits for customers and carriers.

In the U.K., insurers are using Quindell technology to offer programs for young drivers, seniors and other target segments. After the European Court of Justice enacted guidelines to prohibit gender from being used in young driver rates, rates for female drivers soared.

As a result, insurethebox used telematics to launch a new program called “Drive like a girl.” Participants saw rate reductions after three months using a variety of rating variables.

In a bid to counter the negative effects of driving while fatigued, including any associated claims, one innovative idea is to grant drivers who travel less than 2.5 hours at a time – or who travel 2.5 hours, then take a 20-minute break – with a larger discount. That allows consumers to govern their behaviour accordingly if they wish to be safer and also receive the larger discount.

WHAT IS THE PLAN FOR CANADA?

With IBAO’s planned launch of telematics in 2013, brokers will be signing up and receiving in-car devices to offer to customers. Participation levels are difficult to predict as is the extent of the behavioural-based insurance offerings.

It is likely that insurers will walk before they run, but the recent announcement of a Canadian launch of ingenie is expected to put some pressure on early adoption by mainstream carriers.

IBAO and IBRI are hopeful that together they can form a partnership with ingenie that embraces their knowledge and the strength of broker distribution.

Likely targets will be young drivers under 25, who stand to gain the most from good-driver, safe-driver education and discounts. But low-mileage drivers and seniors can expect to see products and pricing geared to their needs.

In addition, it is probable that through its brokers, insurers will embrace value-added services such as using auto diagnostics in the near future – both to differentiate themselves and to extend the value of telematics.