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Market Barriers to Insurance Telematics

In a survey of US auto insurance carrier executives, Octo Telematics identified four perceived external barriers that insurance carriers face when adopting telematics: overly restrictive regulatory environment, prohibitive program costs, low policyholder adoption rates, and finding the right telematics partner. To help you avoid these barriers and more smoothly adopt telematics, we explore each barrier and provide advice on how to overcome these challenges.

For the full survey results, read The State of Insurance Telematics: Challenges, Opportunities, Adoption and ROI.

Overly restrictive regulatory environment

In our survey, 11% of respondents identified the regulatory environment as a potential barrier to adopting insurance telematics. This barrier was cited far more often among organizations with more mature telematics programs (18%) as compared to those who were just beginning to adopt telematics (7.5%). This challenge may be due to either:

  • New adopters underestimating the regulatory challenges they will face when rolling out a new telematics program, or
  • Organizations with more mature telematics programs expanding into prior approval filing states with more stringent regulatory requirements.

In the United States, there are fifty distinct sets of regulatory requirements designed by fifty independent insurance regulators. Requirements can be as strict as California, where only a few specific rating factors can be considered, or as lenient as Ohio which allows a high degree of rate setting and underwriting freedom so long as both are done so transparently.

With telematics-driven usage-based insurance growing, regulators are becoming more open to these products. When we work with insurance partners to launch a new usage-based insurance product, Octo has found that transparency and an emphasis on the benefits of telematics to consumers is the best method for reducing regulatory hurdles. In addition, working with more telematics-friendly states, allows insurers to get the program launched while they work to bring the product to market in more strict states.

Prohibitive program costs

Insurance carriers have two main paths they can pursue with telematics: build or buy. During the early years of telematics, a few large auto insurers – namely Allstate and Progressive – pursued the ‘build’ option. Unfortunately, the investment required to source hardware, build infrastructure, and design platforms to support a telematics program, are significant and open only to the largest, most profitable insurance companies. This early strategy may be the primary reason 29% of respondents highlight prohibitive costs as their principle barrier to adopting telematics.

Read the State of Insurance Telematics: Challenges, Opportunities, Adoption and ROI

As the insurance telematics market has evolved, telematics service providers have created pathways for smaller insurance carriers to leverage telematics. By leveraging a Telematics Service Provider (TSP) like Octo, carriers avoid the large up-front investment required to build a telematics program from scratch. TSPs are able to drive down the cost of telematics by spreading the cost of technology development, data management, device logistics, and analytics over many customers. They also benefit from economics of scale in negotiations with device manufacturers and telecommunication carriers. These savings, along with TSPs’ expertise, bring telematics within the reach of smaller insurance companies.

Low policyholder adoption rate

Usage-based insurance policies only account for around 8% of all auto insurance policies in the United States today. This likely stems from an overall lack of consumer awareness of telematics (one study suggesting only 25% of consumers being familiar with usage-based insurance)  and carriers’ strategic emphasis on retaining their best customers at stable rates. This focus leads to many policyholders never hearing about their insurer’s telematics program out of insurers’ worry they will cannabilize their own book of business. This is in sharp contrast to the approximately 60% of consumers who would opt-into a usage-based insurance policy were they offered one. While adoption is low, it is growing as smaller insurers begin offering UBI programs. Critically, those policyholders using telematics – often those with traditionally high churn rates – tend to have a much higher customer satisfaction score (between 54 and 72 points higher) than those who don’t, leading to improved retention rates.

In a recent survey Octo conducted with Wells Media, we found that insurers whose telematics programs had the greatest sales and marketing involvement were the most likely to realize benefits from telematics. Those organizations with the highest levels of marketing and sales involvement were 20 percentage points (79% vs 59%) more likely to realize a benefit from telematics. Carriers need to invest in developing market awareness of their telematics programs and provide marketing, sales, and agents with the resources and training they need in order to realize the full benefits of telematics. Octo’s most engaged partners, with wide organizational support, have seen far greater growth in telematics policies than their less-engaged peers.

Finding the right partner

The challenge of finding the right telematics service provider was the third largest challenge – reported by 16% of respondents – to adopting telematics. Carriers of all sizes and at all phases of maturity highlight this challenge as a major barrier to adopting telematics. Bringing telematics to an insurance company – and doing so effectively – is a complex proposition involving almost all functions at a carrier.

The right telematics partner can significantly reduce the burden of launching a telematics program. Unfortunately, many TSPs only offer technology, not complete solutions. When searching for a telematics service provider, make sure they:

  • Can offer a portfolio of telematics devices – Each telematics product is different, and requires different data collection capabilities. Subsequently, a TSP who supports a multi-device strategy can provide the device (or devices) that meets your needs. For example, if you want to use telematics to support crash reconstruction or fleet management, the smartphone-as-a-device model won’t cut it.
  • Have proven implementation experience – You’ve brought new products to market before, but telematics-driven insurance products are fundamentally different. You need a partner who has designed and delivered telematics programs nationwide to guide you through the process.
  • Offer an end-to-end solution – Working with a TSP that offers a full solution, including collection, data management, analysis, reporting, and policyholder services, significantly reduces the upfront investment your company needs to make in telematics. This allows you to focus on what you do best: manage risk profitably

These four barriers – overly restrictive regulatory environment, prohibitive program costs, low policyholder adoption rates, and finding the right telematics partner – may seem daunting, but with the right solution and the right partner can be overcome. If you’re looking for an end-to-end insurance telematics service provider, contact us here.

To see how your peers are using telematics – including their adoption maturity, internal barriers to adoption, and the benefits they’ve realized from adoption, read  The State of Insurance Telematics: Challenges, Opportunities, Adoption and ROI.

Where Do We Go from Here?

A look at the future of the Motor Insurance Industry

The world we live in is being transformed before our very own eyes. And as experts foresaw, modern technology continues to evolve rapidly, driving the advancing digitalisation of every human endeavour. Disruption is ubiquitous and the insurance industry is no stranger to this revolution.

The Telematics Market

Telematics has moved well beyond the niche market that first saw it garner attention by the global industry. It has become the new standard for providing both insurers and policy holders with cost-effective insurance policies, bundled with packages of services and products that ensure greater safety and introduce an extremely wide range of added value services. Indeed, the insurance industry is in the middle of a major paradigm shift as it integrates new technology and prepares for an imminent future of smart cities and self-driving cars.

In a presentation held at the London InsurTech Rising Summit (October 16-18, 2017) on the “Future of Insurance,” Octo Telematics CMO Jonathan Hewett addressed the vast disruption currently interesting the insurance industry and the many opportunities that are ready to be transformed into new business.

A New Insurance Industry

The insurance industry – and especially the motor insurance industry – is facing an unprecedented series of opportunities driven by skyrocketing computing power, the incessant accumulation of raw data and ubiquitous connectivity. On average, our cars have more computing power than the Apollo 11 Mission used to land a module on the Moon and bring it back to Earth. Today, vehicles produce up to 5GB/hour of data which adds up to 164 Exabyte/year. Moreover, we are all increasingly integrated into the greater Internet of Things: 40% of the world’s population is on-line today and it is estimated that there will be 30 billion connected objects in the IoT by 2020. (source: McKinsey; GIP; HIS; Prognos; Digital Society Study)

Convergence of Technology and Data

This convergence of technology and data means that the motor insurance industry can now provide new underwriting strategies based on the massive amounts of data produced by vehicles, mobile devices and drivers. This, in turn, drives individual policy pricing based on data evaluated in real-time and automatic analysis of crash incidents and their sequences. Moreover, insurance policy providers now manage an ongoing, proactive relationship with their customers via push notifications and interactive services, rather than the “vintage” once-a-year approach to sign annual policies.

Global usage-based insurance policies are expected to grow from 15.2 million in 2016 to 92.6 million in 2020, a CAGR of 50% in just four years. Similarly, the market penetration is expected to quintuplicate worldwide by 2020. This brave new market is estimated to be worth 35 billion dollars. (source: Ptolemus)

Key Challenges for the Future

The future of fully autonomous vehicles is clearly visible on the horizon. It’s just a matter of a few years before intelligent vehicles become a common sight on our roads. This, in itself, will present an entirely new sector addressing the insurance of self-driving vehicles, along with the emergence of device economics.

A second aspect will concern the world at large, but also pose an interesting challenge to the insurance industry, as it faces the need to integrate systems and data with legacy systems. The insurance market will have to address a heterogeneous world in which self-driving cars will co-exist with legacy vehicles and other devices that may not support state-of-the-art security and connectivity.

In fact, a third key challenge will be represented by total monitoring and coverage – the complete detection of all crashes and their automatized claims processing – once all legacy vehicles have been either eliminated from circulation or, more likely, effectively integrated with state-of-the-art telematics systems.

A Single IoT Platform

One of the final objectives of the current Telematics Revolution will be to integrate all aspects of motor insurance logistics into a single IoT platform. This is already underway via mobile devices but the future will entail far more; it will include full integration of activities beyond scoring of driving behaviours and styles.

Moreover, the industry has to create modular services that can be custom-tailored to industry partner needs and advance seamless API integration through platforms like Octo’s Next Generation Platform.

Finally, future solutions will have to be fully autonomous, allowing independent crash reconstruction and liability assessment to support new insurance models. In fact, the Octo Link Programme is device independent and drives value for OEMs and partners.

This is the road that Octo Telematics envisions to journey swiftly towards a future-proof automotive insurance market.

For further information: Octo Telematics

The Telematics Opportunity for Commercial Insurers

Large fleets have been using telematics to support fleet management capabilities and improve business outcomes for years. There’s good reason – fleets using telematics have reported significant improvements in fleet management efficiency, productivity, and fuel consumption.

Small fleets face many of the same challenges as their larger counterparts, including:

  • Increasing safety
  • Improving productivity
  • Meeting regulatory compliance issues
  • Reducing fleet costs

Many small fleet managers are interested in telematics fleet management solutions, but cite the cost of such systems as a major barrier to adoption. With well over half of insured commercial vehicles being part of a small fleet, there is a large portion of the market that is under-served yet ready to jump in if the right solution presents itself.

How telematics-driven fleet management addresses key challenges

Increasing safety

Telematics allows fleet managers to track vehicles and understand how their employees are driving. Risky behaviors such as rapid acceleration and deceleration, hard cornering, and night driving can be tracked and scored, giving fleet managers insights into the relative risk of their drivers. Driver feedback, from the fleet manager or the telematics service provider, can be provided to individual drivers, improving their safety. Finally, geofencing and curfews allows fleet managers to identify when drivers are utilizing vehicles for non-commercial use and address unauthorized use issues with any drivers who are misappropriating commercial assets.

Improving productivity

Telematics has evolved beyond simple start and end location tracking to allow for sophisticated route optimization capabilities. Now, fleet managers have insight into where drivers are and which vehicles they are driving, allowing them to more effectively dispatch assets to address customer needs. Layering in dynamic driving data, such as weather and traffic, drivers can get to their location exactly when customers expect. Better optimized routes and shorter distances traveled reduce fuel usage, saving fleets money. Minute-by-minute vehicle data also allows fleets to curtail vehicle idling, further reducing fuel costs.

One of the largest challenges facing fleet managers is identifying the best way to maintain and repair vehicles. Any vehicle downtime can have a huge impact on productivity. Larger fleets are often able to compensate for a vehicle or two being down for repairs, but small fleets rarely have the capacity to do so. Telematics allows data directly from a vehicle to be translated into information fleet managers can use to identify vehicle issues and address them effectively.  One major benefit is the ability to optimize vehicle maintenance and repair schedules. Small issues, identified by a telematics device, can be postponed while critical problems can be addressed first. If a crash occurs, Octo’s crash and claims management capabilities allow a fleet manager to dispatch emergency services and intervene to send the vehicle to a preferred repair shop.

Meeting regulatory requirements

Telematics is ideal for meeting current and upcoming regulatory compliance challenges as it is automatic, accurate, and verifiable.

Electronic logging device requirements are one such example. In 2018, commercial vehicles will be required to electronically track and report on driving behavior to ensure that all drivers are properly rested and can drive safely. Fleets can go out and purchase ELD systems to become compliant, or use telematics devices to perform the same function. Not all telematics devices are ELD compliant, so fleet managers need to do their research before implementing a system.

Fleets also need to report on fuel efficiency to comply with IFTA fuel tax reporting requirements. When a telematics device can read vehicle systems data, like Octo’s devices, they can also be used to document compliance with these requirements.

Reducing costs

Between reducing fuel costs, cutting maintenance downtime and costs, and reducing the impact of accidents, telematics-driven fleet management can result in significant cost reductions for fleets. Critically, with great asset use optimization and powerful fleet management capabilities, fleets can significantly reduce their spend on additional assets, drivers, and fleet management products.

How insurers can fill the gap

Taken all together, commercial insurance telematics effectively addresses all the major challenges facing fleets large and small. With fleet management systems costing up to $65 per month per vehicle, though, many small fleets find these systems out of reach.

Insurers are uniquely positioned to fill this gap. With the commercial auto combined ratio exceeding 106% in 2016, and a historically high combined ratio over the past five years, insurers need to find ways to reduce their costs. Offering fleet management capabilities to commercial customers, along with other telematics-driven programs such as usage-based insurance and crash and claims management, insurers can realize up to 18% improvement in their combined ratio. This improvement stems from increased customer acquisition and retention through value-added fleet management services, reduced claims costs, and a more accurate understanding of the risk of individual commercial policies.

Octo has recently seen increased adoption of telematics for commercial lines insurers across the United States and expects to see this trend continue.

Increasing Policyholder Engagement with Insurance Telematics

Auto insurance has one of the highest Net Promotor Scores™ of any industry, yet nearly all auto insurers struggle to engage with their policyholders in a positive and constructive way. This has contributed to a consumer mindset that the only time to think about insurance is when finding a new insurer or processing a claim. Low engagement, combined with highly price elastic customers, leads to the insurance industry having a customer retention rate of 88% – 6% below the top performing companies in any industry.  Low retention rates and the high cost of new customer acquisition point to a major business challenge.

Insurers are turning to insurance telematics in order to bolster engagement over the entire policyholder lifecycle.

The Purchasing Decision

Insurers are some of the largest and most successful advertisers in the United States, spending billions of dollars each year to attract new customers and combat churn. Telematics offers insurers new, innovative ways to further improve their customer acquisition strategies through more effective segmentation and better product design.

Audience segmentation has grown in prominence over the past ten years, led by marketers across industries. These segments are usually created in much the same way a traditional rate plan would be – based on static data such as demographics that segment large swaths of different people into the same group. As data on driving behavior becomes available through telematics, insurers are able to ask – and answer – newer and more complex questions than ever before. The insights drawn from this data are a treasure trove for sales and marketing teams for use in identifying segments of consumers with differentiated values. Combining finer segmentation with traditional product marketing strategies, marketers can reach potential policyholders with higher-impact messaging that addresses their individualized needs while developing product offerings that add tangible value.

Improved segmentation also allows salespeople to direct prospects to personalized products and services they actually need, helping insurers more easily acquire new, satisfied customers. Two large segments that are immediately identifiable with telematics data are low-risk drivers who are currently paying high premiums and high-risk drivers who are currently paying low premiums. The first group are highly prized and likely very profitable as an insurer can offer large premium discounts for switching to a UBI program while still charging an adequate premium for their risk. The second group is underpriced and can be either re-priced accordingly or re-written for more appropriately rated products.

The auto insurance industry has largely lagged in offering customized products to individual buyers. Telematics presents the possibility of an insurance product completely personalized to the policyholder. Beyond improved sales and marketing, telematics-driven usage-based insurance allows insurers to create flexible and personalized products, services, and communications. Usage-based insurance programs are particularly attractive to safe drivers who are typically penalized by ‘subsidizing’ poorer performing drivers in traditional demographic-based rate plans. As telematics matures and more insurers offer UBI programs, the lack of a usage-based insurance product can lead to policyholder defection and create adverse selection as more preferred risks seek lower rates elsewhere.

Having more auto insurance products doesn’t necessarily increase profitability; having products that speak to the specific needs and values of consumers does. Telematics-driven services such as vehicle recovery, emergency calling, and distracted driving prevention add real value to consumers. In a recent usage-based insurance consumer study, 90% of millennials and 65% of non-millennials would pay at least $45 per year for these benefits. Recent direct-to-consumer telematics products have launched in the United States, attempting to capitalize on this need. While we haven’t seen many insurers charging for their telematics program, consumers’ willingness to pay for these telematics-driven services shows the value of telematics to policyholders. Between discounts for the safest drivers, and the value-added services provided to anyone with a telematics-enabled vehicle, telematics programs can be a boon for both customer acquisition and retention.

Becoming a Regular Presence

For many policyholders, the ideal time to interact with their insurer is never – as long as they are not filing a claim. How insurers engage during and after a crash is critical, but a lack of regular interaction with policyholders during their day-to-day lives is a major missed opportunity for improving customer loyalty and retention. Technology has made policyholders easier to reach, but doing so effectively can be challenging. Insurance telematics enables communication opportunities outside of an emergency that are relevant, engaging, and add real value.

Telematics helps you understand how individual policyholders drive. That same data, once interpreted, can help policyholders understand how they drive. Once it has been translated into readable and actionable information for the consumer, telematics data is the exact type of personalized and relevant communication consumers want. Polling from the CMO Council shows that 56% of companies saw higher response and engagement rates from personalized content when compared to traditional communications. Companies around the world are using telematics to provide regular updates to their drivers, including:

  • Weekly driving logs and reports
  • Personalized tips to improve driving
  • Risk event alerts
  • Green driving reports and tips
  • Registration, inspection, and vehicle maintenance reminders
  • Vehicle health notifications and warnings

Some leading insurers are going one step further and adding telematics-driven gamification to their smartphone apps. Gamification has been linked to a 29% increase in customer engagement with companies’ websites. Using telematics data, insurers like Liberty Mutual have built mobile apps that allow drivers to collect badges, see how they’re driving compared to their fellow city-dwellers, and compete to be their city’s safest driver.

With new customer acquisition costing up to seven times more than retention, improving engagement can have a major positive impact on your business. Gallup research shows a strong relationship between customer engagement and critical business outcomes, including “an average 23% premium in terms of share of wallet, profitability, revenue, and relationship growth compared with the average customer.”  Regular, positive communication that has been personalized to the policyholder with telematics data is a sure-fire way to build positive relationships with policyholders.

During an Event

According to a study by J.D. Power, 83% of policyholders who have a positive claims experience during an event definitely will renew their policies, whereas only 10% who had a negative experience would renew. Clearly, an insurer’s ability to ensure a positive experience for their policyholders’ during a claim is critical to the insurer’s ability to retain that customer. Insurers can improve the experience by streamlining the claims process with telematics and providing services that add to safety, security, and peace-of-mind.

Safety and peace-of-mind are at the forefront when consumers purchase auto insurance. When policyholders feel safe, they are more satisfied with their insurance and therefore more likely to stay with their insurer. Telematics-driven services such as automated first notice of loss and triggered emergency response give policyholders peace-of-mind. Advanced telematics services can notify an insurer when an accident occurs and provide information on both the severity of the accident and the location of the vehicle, allowing the insurer to contact the policyholder and dispatch emergency services. Fast accident response could not only save a policyholder’s life, but also significantly reduce bodily injury claims.

How Can You Leverage Telematics for Claims?
Find out in This Report.

These same services are also critical to improving the claims process. Automated first notice of loss (FNOL) allows the insurer to begin the claims process immediately, rather than waiting for the policyholder to file a claim. Octo collects data from a vehicle’s sensors and onboard computer and reconstructs the crash, providing the insurer with a crash dossier. When integrated with the insurer’s claims system, the dossier helps significantly reduce the time to claim settlement. Octo’s partners report telematics-enabled FNOL can reduce the time to settle a claim by up to 50%. According to Ernst and Young, insurers realize up to a 40% reduction in claims costs. Policyholders also realize significant benefits as their barrier to settlement is reduced significantly. Data-driven claims also tend to be more accurate so policyholders may not have to take time off of work to have their car inspected. A shorter and more accurate claims process will significantly improve customer satisfaction and increase policyholder retention.

Insurance telematics can positively impact policyholder engagement throughout the lifecycle: from acquisition through renewal. Telematics can help an insurer attract new policyholders by offering prospects differentiated products. During the life of the policy, insurers can become a daily presence in their customers’ life with regular, helpful communications. Finally, telematics streamlines accident claims processing.

The Case for Telematics in Auto Insurance Claims

The last century has seen automobiles evolve tremendously, yet auto insurance has been slow to follow suit. Only in recent years have insurers really embraced technology that is influencing the insurance process. Auto telematics is one technology that US insurers have been rapidly adopting, mostly through usage-based insurance programs.

Telematics-driven usage-based insurance (UBI) offers major benefits to insurers and policyholders alike, but is only part of the benefit insurance telematics can offer. Since most US usage-based insurance programs use short term installation of telematics devices, they miss out on a lot of the value telematics can offer to both insurers and policyholders.

Why Your Policyholders Want Telematics-Driven Claims

Most policyholders care about three things when it comes to auto insurance: paying the lowest possible price, peace-of-mind, and good customer and claims service. Insurers spend billions of dollars each year trying to differentiate themselves as the leader in one of these three categories. Insurance telematics may be the best way to improve both your commercial and personal lines offerings along all three dimensions in a way that makes a difference to your policyholders and potential customers.

When you think of insurance telematics, you probably think of usage-based insurance. UBI programs track how, when, and in what context a vehicle is driven and tailor premiums to driving behaviors, offering discounts of up to 40% to the safest drivers. These programs, which can be built off data as simple as miles driven or as complex as customizable risk event reporting, are attractive to price-sensitive policyholders, those who are comfortable with technology, and those who identify themselves as “safe” drivers. By more appropriately pricing risk, insurers can reduce premiums and more effectively compete on price for preferred risks that self-select into the program.

UBI programs are just scratching the surface of insurance telematics potential. Instead of only being leveraged during the customer acquisition phase, telematics can be used during the customer servicing and retention phases to furnish drivers with additional services such as location and time-based services, roadside or emergency assistance, vehicle health and maintenance reminders, and automated claim reporting. For policyholders, knowing where their vehicle is, its health, and that emergency assistance is available in the event of a crash has a significant and positive impact on their peace-of-mind. According to the Usage-Based Insurance: US Consumer Survey from WillisTowersWatson, 72% of people who are interested in usage-based insurance would be willing to pay for these value-added services. Including services beyond driver scoring in a usage-based insurance program improves policyholder engagement and satisfaction, leading to higher retention rates.

As an example, J.D. Power found that it takes between thirteen and eighteen days from the time a loss is reported until the claim is paid, depending on severity. With telematics, your claims department can be notified of the crash immediately and provided with a crash dossier in virtual real time to help begin processing the claim. In this way, the crash-to-settlement timeline can be shortened by up to 50%. One of the major benefits of telematics to your policyholders in the claims process is an insurer’s ability to better identify and assign fault. Crash dossiers provide a much clearer view of an accident than traditional methods, quickly providing insurers with the evidence they need to assign fault and protecting innocent drivers from false claims.

Faster claims processing benefits not only the insurance company, but also their policyholders. A report from J.D. Power shows that “satisfaction with the claims experience impacts customer retention and referrals.” 83% of those who had the best claims experience reported they “definitely will” renew their policies. 84% would recommend their insurer. For those that had the worst claims experience, only 10% would renew with or recommend their insurer.

Why You Need Telematics-Driven Claims

If having happy policyholders isn’t enough reason to bring telematics-driven claims to your company, there are other significant benefits for insurers. Most notably, insurance telematics has been shown to improve an insurer’s combined ratio 15-20%. This happens through a combination of reduced claims frequency and severity, improved expense ratio due to enhanced processing, and increased policyholder acquisition and retention.

How Can You Leverage Telematics for Claims?
Find out in this Report.

The largest cost drivers for auto lines are claims and related expenses. Small changes in either have a major impact on an insurer’s profitability. The loss ratio on auto lines are notoriously high, bordering on unprofitable.  In 2015 the average loss ratio (the percentage of premium paid in claims) for personal auto lines was 78% while the average combined ratio (percentage of premium paid in claims and expense) was just over 100%. Compared to non-telematics policies, telematics insurance policies result in 50% fewer claims on average, resulting in much more profitable policies.

Auto telematics significantly reduces the frequency and severity of claims by enabling safer driving resulting in fewer crashes, helping identify fraudulent claims, and reducing legal costs associated with contested claims. In the event of a crash, a driver’s installed telematics device can capture data from the vehicle and many key sensors. This first notice of loss (FNOL) data is transmitted real-time to the insurer in a crash dossier that provides all the relevant data needed to understand what happened such as location, severity of the accident, impact points, and speed at collision. Since first notice of loss is immediate, the insurer can reach out to the impacted policyholder and send emergency responders to the scene, if needed, and potentially reduce costly bodily injury claims. A comprehensive crash dossier helps insurers identify and combat fraudulent claims. The same data is helpful in establishing fault in a crash and reducing legal costs associated with contested claims. Finally, as evidenced through the Hawthorne effect, drivers who are monitored through a telematics device (and who get a discount for good driving) drive more safely. These factors lead directly to reduced claims frequency.

Technology is a cornerstone of process improvement, and an integrated telematics program is no different. When drivers have an Octo telematics device installed, insurers can receive automated notifications when an accident occurs. Concurrently, insurers also receive an automatic crash report they can use to start the claims process. For crash and claims services, it is particularly important for insurers to work with a telematics service provider which has enough data to accurately identify when a crash has occurred and to provide the insurer with actionable data for use in the claims process. Octo’s crash model, for example, has been independently verified as 94% accurate with no false positives.

With US auto insurers spending billions of dollars per year on advertising, it is clear that policyholder acquisition and retention is a major force in the US auto insurance industry. Price competition is a major driver of new business, but great customer satisfaction and piece-of-mind drive retention. A policyholder’s experience during the claims process has a major impact on how they view their insurer. According to Bain and Company “of the types of interactions customers have with their carrier, claims events have the biggest influence on Net Promoter Score (NPS).” Since NPS is strongly correlated with retention, and retention with long-term profitability, it makes sense to ensure that your policyholders have a positive experience during their claims process. By speeding up the claims process, removing potential barriers to claim settlement, and automating time-intensive parts of the claims process, integrating auto telematics into your claims process is the perfect way to improve your customer relationships.

A Case Study

Octo Telematics began working with a leading European insurer on bringing a fully integrated telematics program to the company. Over the course of a three-year collaboration, the insurer saw significant improvement for their telematics policies, including a reduction in claims frequency of 15.9%, a 2.6 percentage point decrease in the amount of time taken to process a claim, and an increase in average premiums of 3.1%. These improvements, along with other benefits realized through telematics, helped this insurer improve their auto insurance combined ratio from 108% to 95.5%.

The 12.5 percentage point combined ratio improvement resulted from an aggressive telematics adoption program. During the first year, the insurer expended significant effort to learn from the new telematics data, developing a deep understanding of their policyholders’ driving behavior, risk events, and crashes. Year two was largely focused on proactively addressing and reducing costs associated with fraud. The company integrated telematics crash data into their internal systems in year three, allowing the claims management team to more holistically manage a claim. Finally, Octo worked with the company to train key stakeholders (e.g.: agents’ network, repair body shop, regional teams) and ensure they maximized their benefit from telematics.

Making the Case

A comprehensive insurance telematics program can help improve your relationship with your existing policyholders and attract new policyholders while providing clear business benefits for your organization. Whether your company is just getting started in insurance telematics, or ready to expand your program beyond usage-based insurance, it’s best to find the telematics service provider who can help you now and in the future.

To learn more about how to leverage telematics to improve claims, read this report from Strategy Meets Action.

Biggest Challenges in Implementing Telematics-Driven UBI: Profitability

The need for auto insurers to offer a usage-based insurance (UBI) program is well known. According to the Ptolemus Consulting Group, companies that implement a UBI program experience a five percent reduction in average loss ratios. It is no wonder that most of the leading US insurers already have, or are actively piloting, a program.

The need for a UBI program is obvious but that doesn’t mean it’s always easy. In our work helping insurers to implement UBI, we often hear about the internal barriers they face when building a program. The most challenging of these barriers are program cost, program profitability, and integration.

Program Profitability

The total market for usage-based insurance products is a subset – often the most profitable subset – of drivers already in the market. A major draw for these policyholders is the lure of lower premiums, meaning that you may be reducing the margin on your most profitable customers. So why would you bother to implement a UBI program, if you’re harming profitability?

A well-designed usage-based insurance program will invariably help your company attract new customers. The new customer base attracted through a UBI program benefits from positive selection – only people who believe they are good drivers and will be rewarded with premium discounts tend to self-select into such a program. Telematics also allows prospective customers, perhaps policyholders with a competitor, to try the program before opting-in. The driver can start transmitting data to your company via a telematics device and decide whether to switch insurers once their driving behavior has determined their premium. This method of attracting customers reduces their barrier to switching insurers and helps you attract new, safer customers.

Usage-based insurance programs can also help evangelize customers. A 2015 study from J.D. Power shows that drivers who received a discount from participating in a UBI program realized an 11% increase in their likelihood to recommend their insurer to a friend.

Finally, because policyholders in a UBI program are aware they are being monitored, and that their premium depends on good driving behavior, drivers tend to adopt safer driving habits. These combined policyholder attributes lead to a lower-risk customer pool, reduced claims costs, and improved profitability for your company.

Want to Learn More About Integrating UBI and Telematics Programs? Download our Report

With auto insurance seen by many customers as a commodity product, customer retention is a major industry issue. Insurers without a telematics-driven usage-based insurance program face an even greater challenge: the prospect of losing a significant portion of the policyholders at the lower end of their risk pool. While losing customers is a challenge, losing your best customers is truly daunting.

As mentioned above, a usage-based insurance program can be imperative to attracting new customers. Buy how can it improve retention?

Also according to J.D. Power’s study, customer satisfaction improves for drivers who receive premium discounts for participating in a UBI program. This improved customer satisfaction leads directly to improved retention. The same study from J.D. Power shows a 10% increase in UBI participants’ likelihood to renew with their insurer.

With a trial-based telematics solution, a customer drives around with a telematics device in their car for six months, then returns the device. For this type of solution, current customers who opt into a UBI program need to stay with the company for the duration of the trial period before receiving their premium discount. By requiring a trial period prior to offering the discount, insurers can increase the length of the customer lifecycle.

For leave-in telematics solutions, customer engagement becomes central to retention. Companies like Octo provide customer-facing portals that drivers can use to understand their own driving behavior, get tips for improving their driving habits, and see the data impacting their policy premiums. Octo uses a driver score to add an element of gamification to their driver dashboard, helping drivers set improvement goals. Customer-facing technologies like this can help you engage with policy holders, improve customer satisfaction, and increase retention.

Auto insurers are some of the largest advertisers in the United States. To attract and retain customers, their advertising budgets are growing, leading to increased combined ratios. By acquiring new, low risk drivers and increasing customer retention, a UBI program can directly improve company profitability.

Continue reading to learn more about navigating the two other main barriers to success: cost and integration.

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