Auto Telematics: Get Started & Move Fast

The current capability of mobile phone apps, plug-in devices, and car manufacturer-embedded technologies to capture driving behavior data such as miles driven, speed, acceleration, and vehicle location stands to provide insurers an unprecedented ability to create innovative differentiated products and deliver very specific new services to policyholders.

People think innovation is just having a good idea but a lot of it is just moving quickly and trying a lot of things – Mark Zuckerberg

These potential products can provide policyholders with the ability to pay according to the distance or manner of their driving. New services can take many forms, including advising drivers on how to drive more safely, how to protect their vehicle from ominous oncoming weather (think hail), and what roads may be best to avoid. Telematics allows auto insurers to evolve from being merely protectors against financial loss to promoters of well-being.

In our last post (click here for “Fast Telematics Follower? Too Late!”), we suggested logic for early adoption of telematics for auto insurance. Our research reveals that companies comprising over 65 percent of personal auto insurance market premium have telematics-based insurance programs in the market, have had such programs, or are experimenting with programs. As more companies continue to enter the market with these programs, pressure will build on the companies that have not moved to develop a strategic response. The longer it takes for a company to develop and act on telematics capabilities, the more disadvantaged it is likely to become.

Start small and create a pilot program

Once you’ve decided you want to do something beyond just studying this issue, the question we often get is: what can an insurer do now to get in the game?

We believe it is best to start small. An insurer should begin by conducting a 60-90 day employee trial that offers a couple of dozen employees a mobile app or plug-in device (we greatly recommend and prefer the mobile app approach for a variety of reasons to be discussed in a subsequent blog posting) with a view toward understanding how the technology works; seeing the breadth and depth of data captured; and understanding what employees may value in a telematics offering. This technology provides numerous opportunities to interact with policyholders in new and different ways. For example, you have the ability to provide reports to users on how they drive and how to drive more safely, the ability to track their miles driven and how their driving differs on different roads or at different times of day, or the prospect to receive messages about their own driving or how another family member is driving. You can then use the feedback from this pilot to determine what type of information will be most valuable to policyholders when you bring a program to market.

Agents can also participate in the pilot program and they typically have valuable insight on what will appeal to their clients. At a minimum, insurers should be asking their agents what they are seeing in terms of interest from current or prospective policyholders for telematics based policies. Two segments of particular interest are millennials and parents of teenage drivers. We believe that millennials will be more oriented toward telematics-based insurance products because of their attachment to their mobile phones, their willingness to exchange information for value, and their sensitivity and interest in lower priced products. With respect to the parents of teenage drivers, they will likely want information and guidance on improving their children’s driving behavior for safety reasons and, potentially, for the purpose of obtaining lower premiums from their insurer.

Focus also on addressing business strategy

During the pilot program, we encourage insurers to think about how telematics and usage-based insurance can address a particular business issue. Will it allow you to access a new market with a differentiated offering? Can it improve retention of a particular segment of policyholder that tends to leave more quickly than the rest of your business? Focusing on a particular business issue will allow you to bring a telematics based product to market in a more focused and efficient way.

The next step would be to craft a program to launch into the market with policyholders. This can take the form of presenting a compelling offer either directly to consumers/policyholders or through agents. Again, we encourage insurers to start small by doing a “soft launch” of the product. Focus on a particular segment that would benefit from this technology. Try it in a single state or with a limited number of agents. Starting small will allow you to more easily gauge market reaction, make modifications to the offer, and address any operational issues that occur in the roll out. The insights gained from this process will allow for a more effective roll out as you expand your program to other segments and geographies.

Beginning now with an in-house pilot is the first step in launching an effective telematics based product in the market. It will allow you to better understand and appreciate the benefits of this technology and how it can be used to address issues impacting your business today. At a minimum, the insights that you will gain about your policyholders that purchase your telematics based insurance policies will benefit your entire book of business. We know from our work introducing end-to-end telematics solutions with numerous insurers that telematics stands to impact and benefit many insurer challenges and provide new valuable features to customers in ways never before available with a personal auto insurance product.

About the Authors

John Lucker is a principal with Deloitte Consulting LLP and is Deloitte’s Global Advanced Analytics & Modeling Market Leader. He is a co-founder of D-rive, Deloitte Consulting’s Telematics Capabilities Services Business. Twitter: @JohnLucker

Bill Mullaney is a director in Deloitte Consulting’s Strategy and Operations Insurance Practice and has over 30 years of insurance industry experience. He is a co-founder of D-rive, Deloitte Consulting’s Telematics Capabilities Services Business.

Sandeep Puri is a director in Deloitte Consulting’s Strategy and Operations Insurance Practice. His work in the insurance sector has included working for multi-national and US insurance companies on strategic and operational matters. He is a co-founder of D-rive, Deloitte Consulting's Telematics Capabilities Services Business.