Telematics a big hit among insurers worldwide

Gareth Stokes, FAnews Online Editor

In July 1994 Altech Netstar installed their first vehicle tracking device in a South African motor vehicle. It was a straightforward device that offered rudimentary tracking capabilities thanks to radio frequency technology. As the cellular industry grew

Insurance companies face huge challenges in maintaining margins on their motor books. It soon became clear that an installed and fully functioning telematics device held many benefits for both insurer and the insured. Upon realising the potential Altech Netstar set about finding a company that could assist in developing cutting edge solutions for local insurance clients. This resulted in a partnership with Octo Telematics S.p.A, an Italian company looking to expand its telematics offering into Africa. Among the interesting presentations at the Telematics Seminar was one from Mauro Cantoni, Vice President of International Sales at Octo. He believes that “the introduction of Insurance Telematics is a global, non-avoidable and non-reversible process!”

A new dimension in a competitive marketplace

The short-term insurance industry is often criticised for lacking innovation. How can you take a boring motor policy and spice it up to make it more attractive to both your distribution channel and the end user? A major benefit of telematics is that it introduces a new dimension in an extremely competitive marketplace. The technology in today’s tracking (or should we say telematics) devices make it possible to offer new and innovative services via the insurer to the insured. You can provide them with detailed reports covering every aspect of their driving behaviour, offer them breakdown and crash assistance, and even ‘live’ updates on road conditions.

Suddenly insurers have another device to underpin their marketing campaigns. By including telematics in their insurance product offering insurers are able to attract new clients while simultaneously “selecting” the best customers. A driver who insures on the basis of an installed telematics device is typically more responsible! Another major advantage of the telematics device is that it increases interaction between the insurance company and the driver. A traditional short-term motor policy requires interaction with the client at subscription and claims stage, with an annual premium review letter thrown in. A telematics product creates a monthly interaction (through a report) and live interaction (by offering ‘real time’ information and assistance to the motorist).

Tackling insurance fraud

“We can use the telematics product to do a lot of things, including tackling fraud,” observed Cantoni. He said that fraud was a major issue in every market in which Octo had a presence. One of the first ‘frauds’ a telematics device can weed out is the false declaration of a residence. “The insurer now has a tool that allows it to see where the car is really housed, independent of where the client declares to live,” he said. The overnight location of a motor vehicle is one of many critical factors in determining a ‘fair’ short-term motor insurance premium. But the telematics device has many more anti-fraud applications.

Data from the ‘black box’ can be used to generate a comprehensive and detailed report of a motor vehicle accident. Thus the insurer has an opportunity to weed out false accidents and false damages claims. “Even ‘honest’ people take the opportunity to repair old damage to their vehicles after an accident event,” observes Cantoni. Telematics can be used to extrapolate where the crash damage should be and draw accurate conclusions about the extent of the damage too!

“The false declaration of bodily injury is a major problem for insurers in the United Kingdom and Italy,” stated Cantoni. Italian and British necks must be extremely weak, he joked, since virtually every car crash in these countries resulted in whiplash and a subsequent injury claim. The good news is that Italian courts are now accepting telematics reports in court hearings involving post-crash claims. Most crashes generate less than 3G of force which is the scientific and medically accepted threshold for a whiplash injury to occur.

Endless benefits

An insurance company using telematics in their motor insurance product offerings will reduce costs. “The reduction of the claim cost is natural because you reduce both the frequency and the average cost of the claim,” observed Cantoni. Apart from introducing ‘good’ business the device has been shown to change driver behaviour for the better. Comparisons of a telematics portfolio and non-telematics portfolio show completely different claim ratios – because if you are aware something is watching you (when you drive) then you will make a behaviour change!

If the European Union decision on gender profiling gains traction then insurers may be left with few options in setting premiums. Driver behaviour has to be the bottom line for setting motor insurance premiums in the future. “Whether you like it or not the world of telematics is upon us, with penetration increasing exponentially in all major insurance markets,” concluded Cantoni. The choice is yours: You can watch from the sidelines to see whether the technology gains traction or you can join the early entrants and ensure a competitive advantage.

Editor’s thoughts: There is no doubt that local insurers appreciate the benefits of vehicle telematics devices… Many of our major insurers already offer some form of telematics insurance product, with a major entrant to the market building its entire solution on this technology from day one. Insurers don’t need more convincing, but clients are still worried about ‘big brother’. Are you clients happy to install a monitoring device in their vehicles in return for reduction in motor premium? Add your comment below, or send it to gareth@fanews.co.za