Why this is
important: The insurance industry is using
telematics devices to gather data about the behavior of its customers, whether
it is driving, home activities or other behavior that impacts the customer’s
insurance policy. This valuable information is already being used by some
insurers to assess risks and establish appropriate premiums. It has been used in
commercial fleet situations for several years and is now becoming more
commonplace in the personal lines arena. Technology advances will continue to
substantially improve the cost, convenience and effectiveness of telematics
devices.
What is
it? The textbook definition of
telematics is the branch of information
technology that deals with the long distance transmission of computerized
information. It is a general term that refers to any device that gathers and
transmits data in real time. In the insurance industry it has
come to mean data about behavior that affects insurance premiums and acceptable
level of risk.
Telematics can be
applied to tracking and diagnostics such as driver behavior, fuel management or
maintenance scheduling, but it also includes GPS and navigations systems. Auto
policies with premiums based on the telematics data is also referred to as
usage-base
insurance.
Broad Implications /
Uses:
·
More accurate assessment of risk
and pricing – better drivers pay lower premiums, adversely data collected on
less-than-perfect drivers results in higher premiums. This results in spreading the
premium dollars more fairly.
·
Behavior modification,
particularly youthful drivers
·
Benefits to driver: More accurate data in claims
situations
·
Auto: telematics attached to the
vehicle not the driver – multiple drivers makes it difficult
·
Lack of a clear regulatory and
consumer protection framework
·
Concerns about
hacking
·
Concerns about using personal
data for other purposes beyond insurance rating
·
What happens to data collected
with consumer is no longer a customer of a certain carrier? Is data
destroyed?
Economic
Impact(s):
·
More competitive
markets.
·
Telematics provides consumers
with the ability to control their insurance costs.
·
This is poised for rapid growth
in the United States. Studies estimate that 40-to-70
percent of all auto insurers are expected to use telematics by
2020.
·
Potential savings to insurers for
reduction of loss exposures.
Insurance Industry
Implications:
·
Telematics has the potential to
create more competition, promote loss prevention and result in more accurate and
fair pricing.
·
Carriers must overcome the
privacy and security questions before they will obtain bigger consumer
buy-in.
·
As innovation grows in the
insurance sector, more and more carriers will be using telematics for home &
auto insurance, shifting traditional underwriting processes to more “black box”
underwriting.
·
PAYD (Pay as you Drive) and PHYD
(Pay How You Drive) models are already out there.
Recommended
Actions:
Agents -
·
Be familiar with insurers who
offer telematics and the potential premium savings available
·
Educate customers on the benefits
and potential pitfalls of telematics.
·
Ensure consumers understand how
data is being used by the carriers.
Carriers -
·
Insurers should obtain consent
before collecting telematics data from consumers.
·
Data collected should be portable
and standardized.
·
Carriers should be transparent on
how data is being used – privacy & safety concerns.
Consumers -
·
Consumers should have ownership
of, control of, and access to the data collected by telematics
devices.
Examples/Resources:
IIABA whitepaper on “The Use of
Telematics Data for Insurance Purposes” (TBA - still under
development)
Evolving Technology
Caution:
Technology advances will continue
to substantially improve the cost, convenience and effectiveness of telematics
devices. However, as this technology
evolves there are also increasing risk for “hacking” and other exposures that
can affect safety and security.
Call to
Action:
·
Be familiar with insurers who
offer telematics and the potential premium savings
available.
·
Educate customers on the benefits
and potential pitfalls of telematics.
·
Ensure consumers understand how
data is being used by the carriers.
Authors: Kathleen Weinheimer
& Cindy Donaldson