ACORD LOMA Session Highlights Disruptive Power of Telematics

Attendees will also learn about the telematics ecosystem, how it works, and what technologies are being used today. The session will explore current trends in and applications of telematics, how insurance companies are positioning themselves, the major obstacles organizations are facing, and what the first steps should be toward implementing a telematics offering.

Not Just Pricing

Telematics was introduced in the industry as a means to support usage-based pricing. By recording factors such as where, when, and how often vehicles are driven, carriers can gain a more granular pricing structure than through the use of traditional miles-driven brackets or other static factors. However, telematics has the potential to reach well beyond pricing.

"The far more important impact of telematics is that it represents an opportunity for carriers to differentiate themselves in the market long-term," says Hill. "Telematics is an unprecedented opportunity to develop powerful new data and new customer engagements."

That engagement opportunity is represented through the use of telematics as another touch point with customers, Hill explains. "Historically, customers engage with their insurer only around infrequent transactions such as policy application, renewal, and claims. Also, many of those transactions are done through agencies—to the point where many policyholders don't even know who their insurer is. It's not like banking, where customers interact directly with their bank numerous times each year," he says.

With a proactive telematics strategy, carriers can reach out to customers more often in ways that add value to the relationship, such as by suggesting changes to driving habits that will not just lower rates, but also improve safety.

"Your insurer might see that you have a habit of hard braking when you drive home from work," Hill explains. "They could combine that with data from other customers to suggest an alternative commute that has less traffic and is less stressful. Teen driver safety is also a big concern for parents, representing an opportunity for insurers to offer monitoring services as well as pricing reductions for above-average teen drivers."

Device and Data Collection Challenges

For carriers, a big challenge of telematics has been the high entry costs of hardware. Although device costs have come down from over $400 to a little more than $100 each, providing hardware to each interested policyholder can be a huge upfront cost. The session will explore different methods carriers are using for telematics hardware, including rotating-stock, non-owned/outsourcing plans, and manufacturer-installed OEM devices.

Data also presents challenges, with each type of telematics device potentially representing different data capture and different data standards.

"Until now the insurance industry has ignored trying to directly partner with auto manufactures due to the high fragmentation of solutions.  Now is the time for the auto industry to have input into the creation of a standard," says Goldberg, adding that the session will outline how data definitions are being laid out along with recommendations of the type of data to be captured from current and upcoming telematics devices, and how ACORD has been at the forefront of the effort to create standards around insurance telematics data and exchange.

Insurers looking to start a telematics program are also challenged by what Goldberg calls "landmines" around existing telematics patents. However, he believes that at the pace technology is changing, those landmines will eventually be defused as similar ones have in other significant industry endeavors over time. 

"We are seeing more carriers explore creative ways to get around intellectual property issues," he says.

"Also, we believe in 'cooptition' of the type that has developed to give rise to shared-data resources such as CLUE and ISO," Goldberg adds. "Let's face it—the amount of data required to get statistically significant predictive factors from telematics analytics is massive in terms of miles driven or car-years of operation. We believe that eventually captured data will become shared across groups, which will provide a big lift to telematics in the industry."

Implementation Strategies

The session will explore the types of implementation questions insurers need to answer—questions that are much broader than simply which telematics device should be used.

"There are the strategic questions around how much emphasis is put on pricing versus other issues such as teen driver safety or other outcome-based initiatives," Hill says. "Carriers are also asking whether to go on their own or cooperate with other carriers that are at the same level of telematics development. They are assessing the speed of adoption in the industry and where they will be positioned comparatively five years from now. Those are all critical questions to answer to take appropriate action today."

"Carriers need to decide between an offensive and a defensive strategy," says Goldberg. "Are they going to push to be out in front, or are they going to follow the leaders and hope they don't get outflanked?"

Future Disruption

More and more insurers are investigating telematics or piloting telematics programs. Even though only a few programs have resulted in publicly available offerings, analysts predict that telematics will indeed be a disruptive force in the insurance industry. The session will conclude with a look at the future of telematics and its potential as a behavior-changing technology that has far-reaching societal benefit.

"The data you're capturing with telematics is a lot broader in application than just automobile insurance," Goldberg says. "You're getting digital insights into how people drive and how they behave.  This has value to other lines of insurance and other industries, like consumer marketing. As the industry leverages that data and derives insight from it, there is a real potential for insurers to take a leading role as champions of safety."