Short-term insurers get their teeth into mobile telematics

Gareth Stokes, FAnews Online Editor

A couple of weeks ago we sent out a newsletter about an innovative partnership between Santam and Vodacom. South Africa’s largest short-term insurer had partnered with the cellular giant to bring cellular technology to bear on the motor insurance premium calculation. The insurer hopes data from the Vodacom LiveTrack device will enable it to reduce motor premiums based on actual driver behaviour. Insurers have had access to vehicle ‘operating’ data for some time – speed and location statistics can be provided by a variety of tracking devices – but are only now getting to grips with how this information can improve their product offering.

The challenges facing the short-term insurance industry in this regard are dealt with in a January 2011 report issued by PriceWaterhouseCoopers (PwC), titled Mobile telematics and the future of automobile insurance. “It is no secret that most insurers have struggled to make telematics an integral part of their core business strategy,” writes Tom Kavanaugh, of PwC-Diamond Advisory Services. He says global insurers are struggling to get to grips with two main issues: “First, how to recoup the cost of the telematics device or platform, and second, how to create a compelling consumer value proposition that includes the sharing of driving data as the basis for pricing and underwriting!” These issues apply to South African insurers too.

Cost issues will be easily dealt with!

When vehicle tracking devices first became popular their primary purpose was to assist in vehicle recovery. Insurers offered discounts to owners of high-end (expensive) vehicles with tracking devices installed because of the increased chance of recovery post theft or hi-jack. These devices proved extremely popular and after a time insurers insisted on some form of tracking device – again dependant on the sum insured – as a condition of insurance. No tracking device – no insurance! Vehicle owners accepted this requirement based on their insurance premium ‘saving’ offsetting the monthly cost of the tracking device.

As vehicle tracking methodology improves the ‘track and trace’ function has been replaced with more sophisticated data. Kavanaugh observes: “Widespread, adaptable and affordable technologies make mobile telematics easier to develop, introduce and support than ever before…” A couple of years ago you had to install a tracking device in a secret location in your vehicle… Nowadays your mobile phone or GPS device have the potential to provide levels of telematics never before imagined. And instead of simply tracking location and speed, modern telematic devices can provide feedback of driver behaviour too!

The pieces of the puzzle have already been ‘cut’… Smartphone PLUS ‘wireless’ Internet PLUS GPS make it possible to track vehicles in real time – at minimal cost to the consumer! All that remains is for the insurers to put them together. And that’s why the first part of the ‘problem’ is fast becoming irrelevant!

The shape of things to come...

“The traditional, reactive touch points that occur mainly after an accident could shift toward proactive, preventative interactions based on attractive add-on services,” opines Kavanaugh. He shared some of the steps an insurer could implement to benefit from the shift to mobile telematics.

Step 1: Incorporate telematics as a primary component of your product offering. Telematics must be part of your broader mobility strategy... It opens a new channel of communication between insurer and client. One ‘idea’ being touted internationally is for insurers to provide their clients with real-time information on traffic congestion, poor road conditions etc.

Step 2: Form strategic partnerships. Insurers will have to find innovative ways to work with motor manufacturers, Smartphone developers and data providers... This ‘step’ might be one too far for local insurers who don’t quite have the scale of their US counterparts. But it will be possible for local companies to pursue partnerships with cellular and data services providers, such as Santam’s ‘partnership’ with Vodacom, mentioned earlier.

Step 3: Integrate mobile telematics data. Insurers will have to combine the available information and services into their core internal marketing, segmentation, underwriting and claims value chains. The third step in the process talks to the second challenge identified in the opening paragraphs – namely – how do insurers ‘apply’ the data without infringing on consumer rights?

Applying telematics could be more difficult.

The data collected from these mobile telematics devices – if correctly applied – could create massive savings for insurers. “Vehicle-specific data from mobile telematics can minimise both direct and indirect costs to providers, while providing effective risk management,” writes Kavanaugh. The trick for local insurers will be to ensure their clients are fully apprised of how this data will be utilised at claims stage. Failure to do so will result in numerous post-claim disputes.

Editor’s thoughts: Two decades from now telematics devices will probably be built into motor vehicles, with traffic law contraventions ‘uploaded’ directly to the authorities… But the traffic utopia portrayed in many science fiction movies is far removed from the Wild West driving techniques practiced in South Africa. Are we ready to accept insurance underwriting and claim decisions based on mobile telematics data? Please add your comment below, or send it to gareth@fanews.co.za