Talking telematics

Ernesto Suarez is chief executive of Halo Insurance Services, which runs iCarhireinsurance.com. He runs an excess hire car insurance operation across Europe and has closely followed the telematics market, keeping fully aware of developments across the continent.

Here he gives his thoughts on telematics, the concept of installing hardware in cars to monitor young driver behaviour and pricing insurance accordingly.

Last week Co-Op became the latest insurer to announce it was launching a telematics device for young drivers. What are some of the advantages of telematics for insurers?

Over the past two years, the benefits of insurance telematics have concentrated on the following three key areas:

1. Self selection. Underwriting results improve and claims fraud is less likely. Pre-installation gives the insurer the opportunity to inspect the vehicle. Good drivers want to prove themselves so they seek this type of insurance.

2. Validation. Never has it been so easy for insurers to validate what they are insuring, both vehicle and driver. Innovative products validate the vehicle, the proposer, the vehicle’s log book, driver’s licence, convictions, proof of no claims discount and additional drivers.

3. Claims effectiveness. Claims handlers can be informed of the details of an incident to validate anecdotal evidence, help manage a claim, help recover stolen vehicles, and establish liability and/or challenge severity.

Slowly but surely, the adoption of online dashboards provided to policyholders will strengthen the relationship between insurer and customer as they promote good driving behaviour. The use of telematics enables insurers to more effectively incentivise good driving practices and talk with their customers more often than three times in any given year (for purchase, potential claims and renewal).

When Norwich Union (now Aviva) performed the pilot scheme in 2006, accident claims among younger drivers alone dropped by about 20%. That is a staggering statistic and it represents a huge benefit in terms of road safety.

What are some of the problems or hurdles that insurers face in bringing in the telematics technology?

Implementing a telematics pay-as-you-go (PAYG) car insurance product takes a large insurer anywhere between 18 months and three years. By nature, insurance companies are complex in structure, with older IT systems. Slow decision making does not help either. Sometimes, that poses a real problem when dealing with the telematics providers as the amount of processes being introduced have to be monitored. It is the only way insurers will extract real value from the data coming through.

Also, some of the problems stem from not having enough claims and pricing experience in this new business model. Trying to establish the appropriate premium for a risk is a challenge early on.

Three years ago, you could have blamed high installation costs of the so-called “black boxes”, but this cost is quickly dropping and there are new companies providing a one-stop-shop service.

Take for example Wunelli. It has built a proven supply chain for Insurers to enable it to launch a telematics-based insurance using tried-and-tested hardware, data collection and billing/administration processes. This means that Insurers can move quickly to market and can provide a more tailored insurance product to the policyholder. Wunelli is behind the recent Co-op launch and finding real traction with insurers.

As an entrepreneur who works in motor insurance across the continent, can you tell us how widespread telematics is in Europe at the moment? Is the UK slightly behind on this technology?

Europe is an interesting development because there are several well-known telematics-based products operating successfully online in different countries. The technology within the 'black box' is closely matched, but not all products are using all their functionality.

In Belgium there is Viviums’s S2 = Safe & Save programme. The product is based on the principles of security and safety. It is positioned to the fathers of young drivers, since most of the time, they are making the insurance-purchasing decision.

In France you have Amaguiz (a product underwritten by Groupama). It is based purely on mileage. It counts the kilometres you drive and sends them to a service provider who then invoices you the usage. It does not use GPS, and it seems to be positioned to the greater public, not just young drivers.

In Austria and Hungary you have Uniqat selling Safeline, which is a three-year contract with access to discounted comprehensive auto rates for young drivers.

In Spain you have yCar, a programme underwritten by Mapfre for young drivers. It features a telematics tracker for theft purposes, but that is it. The rest is backed up by a traditional rating model.

So in summary, there are good examples of telematics-supported products, but clearly the UK is leading the way in respect of car insurance products. The value chain is also well positioned to help the UK make PAYG a viable option for UK policyholders.

Is telematics something that would be considered for usage in rental hire cars?

Telematics is widely used in the car rental industry to assist fleet managers optimise the usage of the vehicles. Where telematics has been introduced, it has quickly improved fuel savings, productivity has increased and there are reduced operating costs. Lately, large fleet operators have been saying that it improves their carbon footprint due to gains in efficiency.

In the consumer car rental market, the majority of rental cars are fitted with a tracker device so they can activate it if a car gets stolen. If asked, car rental firms usually let you know up front if a device is installed and what they use the device for. I have not seen or heard of any car rental firms that apply any penalties if a customer has breached any of the car rental agreement limits, such as area of use or miles driven.

Finally, have you any thoughts on some of the other big issues that the motor insurance industry will face in 2011?

Personally, I would like to see the motor market make an underwriting profit as a sector. It will have a halo (excuse the pun!) effect on other areas in the personal lines market and potentially begin to clean up the claims farming which has plagued the industry for many years. As an industry, the motor market needs to get the issue of personal injury claims under control, which could be helped by new legislation aimed at reducing the burden of these claims.