Insurers risk being left behind as telematics and big data reach a tipping

Research by SSP, a leading global provider of insurance technology, has shown that many insurers risk being left behind in the telematics revolution as their legacy systems cannot cope with, or properly utilise the big data it generates.

During 2013 telematics will reach a tipping point globally as a number of large insurers that have been piloting usage-based insurance policies over the last two years come to market with new propositions and technology costs drop. SSP argue that although the benefits to be gained from using telematics are largely accepted, many insurers are still struggling to understand how to manage the data that it produces and are hamstrung by systems that are no longer fit for purpose. The bottom line, however, is that if insurers focusing on the motor market are to remain competitive, they need to implement more targeted underwriting and develop niche products.

Appreciating that South Africa generally follows many European short term Insurance trends and shares similar challenges, SSP believe it is important for local insurers to track these trends and developments. According to the research across the UK, today there are currently only around 300,000 telematics-based motor policies. This is however expected to increase by 700% to over 2.15 million by 2015, and cover nearly 10% of the motor market. This in part is driven by powerful EU legislation whereby all new vehicles (25million p.a.) must have e-call technology for emergencies fitted as standard. In the US, already up to 70% of insurers are planning, piloting or implementing telematics. This large adoption will have a significant impact on how rating is implemented across international insurers.

Clinton Brown, SSP Sales Manager for Africa says, “Our motor insurance industry is facing a similar unprecedented number of challenges to Europe. Changes locally have also been precipitated by years of heavy price competition, reduced investment returns and increased claims costs. We believe SA insurers should keep a close eye on what’s happening in Europe, the US and in other markets too. Insurers need to consider how to implement innovative telematics solutions to develop more accurate pricing, improve risk management techniques and deliver a better claims service.”

Brown says the development of 99% accurate apps and the advancement in smartphone technology have meant that expensive hardwired black boxes are no longer the only option for collecting driving data. The use of smartphone apps makes it possible to offer telematics to the mass market, not just high-risk drivers. Brown acknowledges that for most insurers it is a huge undertaking to change their existing technology platforms, but with consumers likely to demand more information more regularly and in a variety of formats, it is increasingly becoming an essential move.

Insurers are advised to take the move into telematics and the wider world of big data in three steps:

• Enter the market cautiously, partnering with specialist service providers to reduce risk, cost and complexity

• As telematics goes increasingly mainstream and becomes a larger part of the insurer’s business, gradually bring the necessary skills and operations in-house

• Ensure that your servicing and administration platforms are agile and flexible enough to cope with rapid changes in product, pricing and new data sources across all distribution channels

Brown concludes, “Consumers are increasingly demanding – they don’t want to be limited in the services they receive. They expect insurers to be delivering quotes that are based on their individual risk. Telematics is only part of the big data revolution but it is a crucial stepping stone into that world and the sooner that insurers engage, the sooner they will start to develop the new capabilities they need to compete in the future.”