By John Lucker
A quickly advancing technology that was embraced early on by the automobile insurance industry, telematics represents the convergence of geospatial, motion sensing and telecommunications technologies, as well as advanced information processing and high-end computational power. Telematics delivers value through the real-time observational detection and recording of a driver’s actual behaviors and then transmitting the captured data back to a central computational hub for analysis and decision making. Such telematics capabilities for insurance purposes are broadly labeled “Usage Based Insurance” (UBI).
Perhaps you’ve seen ads from several auto insurers promising rate reductions of up to 30 percent for drivers willing to place a telematics device in their car to assess and report on the driver’s habits. In some cases, even if the customer is not a good driver, the insurer offers a nominal discount of around five percent just for installing the device.
This opt-in discount serves as compensation for a consumer to provide their driving data to the insurer for research and data aggregation purposes. Larger discounts are available for drivers who prove their safety and diligence, thus creating a favorable quid-pro-quo for the insurer and customer: less risk + lower claims costs = lower customer premiums and higher insurer profits.
By leveraging telematics technologies and real-time driving behavior, insurers are able to improve the driver risk assessment process because underwriters and actuaries no longer have to rely solely on assumptive correlated data and historical driving records to determine rates. Generally, customers find this new approach inherently fair; insurers see great value in the actual observable cause and effect dynamic of the data; and regulators appreciate both sides of the dynamic as an improvement over hindsight and data proxy-oriented risk assessment.
Expanding Telematics Beyond Insurance
Whether delivered through a black box device installed in the diagnostic port of a vehicle or via a smartphone mobile app, telematics is beginning to make its mark in a number of other areas, including fleet management, stolen vehicle tracking, satellite navigation, fuel management system for fleets, and monitoring of youthful and elder drivers. In fact, the technology is shaking up business models as it moves into other insurance segments and entirely different industries.
So what is a common thread determining if a business is ripe for telematics? The business should have a need and ability to derive value from monitoring, predicting and/or facilitating consumer behavior in real time via geospatial and/or motion-oriented information.
By harnessing continuous streams of data through smartphones, embedded devices, wearables and even body sensors, telematics enables many types of businesses to capture and leverage individualized consumer behavioral and usage data when the consumer voluntarily opts in to such a relationship. This information can be used to analyze a person’s movement, environment, health, relationships, propensities, affinities and even psychological patterns—all in an effort to enhance, enrich and provide mutual benefit to the consumer-business relationship.
Consider life insurance companies: By leveraging a stream of telematics and motion-sensing-powered data voluntarily provided by an applicant or insured, they can gather information on sleep patterns, activity levels, heart rate, caloric output, blood glucose levels and more to better underwrite policies.
Imagine the value commercial fleet risk managers get from having actual data on a particular driver or a fleet of vehicles in real time that they can use to predict or adjust future activity. Think of the benefits nursing home operators obtain by having telematics detect when an elderly resident wanders away from an expected location or suffers a fall. And school bus supervisors can use telematics to get immediate feedback on the safety and efficiency of student transport.
Perhaps the most widespread future vision for automobile telematics falls within the purview of marketing. Envision the potential of offering opt-in users—and perhaps others they are with—real-time discounts to restaurants or shops, or providing value-added information based on where and when consumers are shopping or traveling.
These services could attract new customers and restore previous ones. They also could enable more frequent customer connections, enhance loyalty and incentivize cross-sell and up-sell, as well as supporting a host of other high-value customer management actions.
