Over the past year, Octo has seen significant interest intelematics solutions for commercial auto insurance. Asinsurers start seeing results from their personal auto usage-basedinsurance programs, they look for new ways to leverage telematicstechnology. With half of the 13 million commercial vehicles in the U.S.connected via telematics, bringing telematics to commercial autoinsurance is a logical next step.

Price-based competition in commercial auto insurance has been amajor driver of increasing combined ratios over the past few years.Often in our discussions with insurers, we come to the samesticking point — with record high combined ratios, they cannotmake the business case for offering significant discounts to theircommercial customers in exchange for telematics data.

While cost is often the most critical buying criteria forcommercial insurance, insurance products that add significant valuefor policyholders help insurers differentiate themselves in themarket. For most companies, auto insurance represents just a smallportion of their overall business insurance, minimizing the impactof discounts. Instead, commercial customers look for partners whocan add value and help them improve their bottom line.

It is critical to a commercial telematics program's success thatthis shifted focus — from discounted pricing to addedvalue — be reflected in the design of your platform.

The commercial telematics solution

Having seen the benefits of fleet telematics solutions, manyauto insurers have considered ways to adapt personal linestelematics solutions for their commercial customers. Most havefound that even the most robust personal lines solutions (withcapabilities such as driver behavior monitoring, driver feedback,time and location based services, and distracted drivingmonitoring) are not enough to induce their commercial policyholdersto adopt telematics. Other insurers have pursued partnerships withfleet telematics providers (losing out on the wealth of data theycould gain by providing telematics solutions directly to theircustomers).

To maximize the value insurers can offer their commercialpolicyholders, they need a telematics solution that offers not onlytraditional telematics capabilities but also offers a robusttelematics-driven fleet management toolbox. Commercialauto-specific telematics solutions can add new fleet-focusedcapabilities such as electronic logging of hours of service (ELD)reporting, stolen vehicle recovery, maintenance and repair tools,and enhanced trend reporting. In addition, robust fleet managementtools allow fleet managers to see both individual driver andaggregate fleet reports to monitor and improve fleetperformance.

The value to your customers

So how does a insurance telematics solutions, built specificallyfor commercial auto, help insurers add value for their customers?Fleet telematics programs have been shown to help companies:

• |
  • |
    • |
      • Reduce their total cost of vehicleownership: Telematics can reduce a fleet'stotal cost of ownership (TCO) by as much as 15% through decreasedfuel, maintenance, insurance, damage, and rental vehicle costs.Fuel costs — accounting for as much as 25% of total fleetcosts — often fall by more than 20%. When telematics is offered throughinsurers, the cost of fleet management systems are similarlyavoided.
      • Improve their drivers' safety: Vehicleaccidents are the leading cause of work-related fatalities in theU.S., according to the Centers for Disease Control,and more than 90% of these accidents are caused by humanerror. A U.S. Department of Transportationstudy showed commercial telematics programs with driverfeedback can elicit significant improvement in driving behavior. Inthe study, medium-severity driving risk events were reduced by 55%and high-severity events were reduced by 60%.
      • Increase employee and assetproductivity: Telematics provides a wealth of dataand tools for fleet managers to use in optimizing their fleets.Telematics can be used to enhance maintenance schedules, optimizefleet routing, improve driver selection and training, and
      • Strengthen compliance: Compliance, bothwith state and federal laws and with company policies, is all aboutmonitoring and reporting. Telematics excels in this area.Commercial telematics solutions like Octo Fleet providecapabilities for electronic logging of hours of service for theFMCSA ELD mandate, fuel efficiency tracking for IFTA, and vehiclelocation monitoring, curfews, and geofences for internal controlpurposes. Notifications and alerts, and customizable thresholdsextend these functions for your commercial customers.

While these benefits come from services that are ancillary tothe core commercial auto product, they have the ability tosignificantly impact your customers' bottom line. With fleets facing significant year-over-yearincreases in vehicle, repair, maintenance, insurance, andemployee costs, telematics-based fleet management tool help offsetthese cost pressures and boost profitability.

The value to insurance carriers

Adding value for your policyholders is admirable, but launchinga new product only makes sense if it improves your outcomes.

So how does telematics add value for commercial insurers?

Commercial insurance telematics solutions primarily providevalue for insurance carriers in three ways:

• |
  • |
    • |
      • Improving risk pricing: Insurers have beenusing telematics to better understand risk for the past decade. Inthe US, this primarily takes the form of usage-based insurance forprivate passenger auto. These same driving behavior insights arejust as for commercial auto but can also be used to providefeedback to fleet and risk managers, helping your customers take adata-driven approach to risk reduction.
      • Reducing claims costs: Telematics may be themost powerful tool insurers have to reduce claims costs. Sincedriving risk can be directly measured by insurers, premiums areoften tied to measured driving risk, ensuring that fleet managersare incentivized to reduce risk. Feedback from driving behavior analysis helpsimprove driver safety, reducing the risk of a loss event by 20-30%.With the introduction of crash detection and instant first noticeof loss capabilities, telematics has made it possible to streamlineyour claims process, drive down ancillary costs like towing andstorage, and combat fraudulent claims.
      • Improving customer acquisition and retention:Telematics, and the tools it enables, serve as a primarydifferentiator in the market, helping your agents sell yourproducts more effectively. Given the nature of telematics, thecustomers you attract are more likely to be committed to riskmanagement. More importantly, telematics is critical for yourcustomer retention efforts. In addition to creating loyalty throughvalue-added services, telematics facilities more frequentinteractions with your customers, which contributes to customer loyalty. Moreloyal customers “stay longer, buy more, recommend the company tofriends and family, and usually cost less to serve,” a Bain & Company analysis shows.

Commercial insurance telematics is a win-win for both you andyour customers as it is an equal exchange of value-for-value. Withthe combined rations for commercial auto high and climbing,insurance telematics is the most effective way for you to addressall the factors impacting your profitability.

To learn more about commercial auto telematics, download ournew white paper Top Four Benefits of Commercial InsuranceTelematics or check out our commercial lines solution, Octo Fleet.

Nino Tarantino is the CEO of Octo Telematics North America.He can be reached by email at [email protected].

Read additional industry analysis from NinoTarantino:

5 takeaways from Connected Car Insurance USA 2017

How telematics can help reduce autoaccidents