TheInsurTechLawyer.com recently had a chat with the folks at AutoWiz about the latest on car telematics.
TheInsurTechLawyer.com: What trends are you seeing in telematics adoption by insurers in India, the UK and in Asia Pacific (if relevant)?
AutoWiz: Each market is in a different maturity stage with respect to Telematics Adoption in Insurance.
The adoption curve is driven by several factors starting with the prevailing regulatory environment and how permissive it is in a particular country to allow insurers to do telematics driven risk pricing as well as offer other allied services.
We also see geographies where average annual premiums are relatively high (as a percentage of car value) and they lend themselves better to telematics adoption as there is more scope for absorbing technology costs.
For example, in India, the regulatory environment only permits telematics insurance products under a regulatory sandbox environment. Insurers are quite ready to experiment with PAYD/PHYD given the high intensity of competition. Some of the insurers have started using telematics solutions to gather data and develop their underwriting models so that when telematics insurance is permitted they can launch without any significant delay. We do expect telematics adoption to catch up quite rapidly once the regulatory environment allows it.
In several countries in the Asia-Pacific region, we are seeing similar high-growth and high competition situations amongst insurers which should see acceleration of innovative telematics insurance products. In several countries, we see instances of insurance companies have already started offering both PAYD and PHYD insurance
The UK is further along the maturity curve in terms of telematics adoption. More than 10% of drivers have UBI policy and amongst young drivers that percentage is about 25%. The higher adoption rates for telematics insurance among young drivers is due to the high premium they need to pay when rated under per traditional pricing models.
TheInsurTechLawyer.com: Is behaviour based insurance (Pay How You Drive) a thing of the past as usage based insurance (Pay As You Drive) becomes more common?
Autowiz: Pay As You Drive is certainly the basic and preferred entry point for Insurers to offer usage based Insurance. We think that COVID-19 has highlighted the desire to pay for car insurance based on miles driven. As a product, PAYD is simple for consumers to understand and adopt. With more connected cars with OEM fitted devices, PAYD adoption is likely to go up further.
PAYD can be potentially offered without the need for relematics, where the car owner declares the mileage of the vehicle with the picture of the odometer presented as evidence. However, that is generally considered open to fraud.
In contrast to PAYD, PHYD takes into account driving behaviour which is a major predictor of accident risk. Also, it enables more direct engagement and touchpoints between the Insurer and driver. The Insurer can also use the driving behaviour information to educate risky drivers about safe driving and hence can actually reduce the possibility of claim. As some global examples have shown, PHYD combined with micro-rewards has some distinct benefits for Insurers to stand out. Also, in this form, PHYD can be potentially offered without requiring any device in the vehicle, using purely smartphone telematics. In contrast to age based risk scoring, PHYD is more accurate risk measurement method for young and senior drivers.
Thus, our view is that we will see a mix of PAYD and PHYD globally.
TheInsurTechlawyer.com: Are consumers comfortable with telematics being provided to the insurer? How might they overcome their concerns?
Autowiz: In our experience of selling Telematics solutions directly to car owners, we believe that trust is essential for consumers to share data. What this simply means is that the insurer has to be quite clear about what data they are collecting, how that data is handled, how that data is used to rate/score and what specific benefit consumer shall potentially get in return. If the consumer is clear about these in plain and simple terms and the Insurer demonstrates that clarity in the design, implementation and communication of the solution, we think consumers will be comfortable. Also, even with all these measures, choice should still be with the consumer and it is a choice for the customer whether they opt-in to enrol to a telematics Insurance program.
TheInsurTechLawyer.com: What challenges do insurers face in ensuring data integrity with a variety of third party devices in the market, as well as increasingly connected cars with in-built telematics capability?
Autowiz: That’s a great question. For the foreseeable future, insurers have the challenge of working with a multitude of telematics data gathering options and being able to ensure data integrity. We advise Insurers to design and implement their programs with that heterogeneity in mind. This means having a modular technology architecture that allows for multiple data sources to be ingested over time. One may start with a certain option but leverage other options as they become feasible. The key is to be able to have an ETL (extract-transform-load) layer for each of the data sources that cleans and normalizes telematics data for generating driving behaviour insights that are consistent across telematics data gathering options.
As an example, OEM fitted telematics are great for accurate measurement of mileage but may not report the fine grain acceleration data needed for accurate driving behaviour analysis. Smartphone based approaches need data filtering to weed out trips not taken in insured’s car but are great for measuring distracted driving.
Since Insurers typically outsource the telematics implementation, this also means that Insurer should ideally not tie themselves up with a TSP (telematics service provider) who is locked to a particular data gathering option.
Barun Kumar De is Business Head at AutoWiz. You can follow him on LinkedIn.