Insurance is a huge balance sheet consideration for fleet owners. By allowing insurance companies access to telematics data, however, companies could be set to gain more control over these costs across all vehicle fleets – from cars to HGVs.
Usage-based insurance (UBI) is a new and growing area of interest for both the connected car and telematics markets. Combining the two technologies and allowing insurers access to some core elements of the data that is produced, means insurance companies are able to calculate more individual risk profiles and provide more attractive premiums.
While insurance brokers already use risk profiles in the consumer market to create tailor-made – and cheaper – policies for car owners, the data is still generic. The availability of enhanced driving data – such as where, when and how the vehicle is driven – allows them to make offers more individual. This means customers only pay based on how they drive, rather than on an average for their profile.
Fleet insurance premiums are typically calculated using the entire claims history of a fleet. This means telematics technology can not only be used to measure driving behaviour for calculating individual premiums, but also to help business drivers improve and to let the fleet manger – in some cases jointly with the insurance agent or a dedicated risk manager – better understand the risk of the whole fleet. By helping individual drivers improve, by identifying low scoring drivers and sending them on training programs for example, fleet managers can reduce the risk and fleet claims ratio, ultimately lowering insurance costs.
The benefits to both sides don’t stop there. There’s a strong health and safety element as well. If a driver has an accident the insurer can quickly acquire data from the accident – including time and location, type of vehicle and even type of fuel. Not only does this help speed up the claims process, it can also help emergency services respond faster and more efficiently to incidents.
Where are we now?
In some markets UBI is well established. In the UK, for example, a number of companies are using it to help young drivers reduce their premiums. Meanwhile, in Italy, UBI and Pay as You Drive options have been around for several years. In this particular case there are historic reasons for its presence; vehicle theft has been a big issue and having telematics boxes installed in cars enabled the vehicles to be tracked and recovered more easily.
While some pilot schemes are being run in other regions, UBI is still far from mass market across Europe, and not likely to hit this level for another two or three years. However, there is strong interest to develop the market rapidly.
What the future looks like
Because the infrastructure to enable this to happen is not entirely in place yet, one of the challenges to widespread adoption is making the business model as attractive as possible. Currently, insurers pay for telematics boxes to be installed as well as paying for the data transfer. This makes the process expensive, unless there are significant savings to be made – for example, in the consumer market for younger drivers.
This is where the growth of the connected car could have a significant impact. With increasing numbers of cars coming ready connected with telematics boxes, we can envisage a situation where there are multiple uses for the data coming from these boxes and where users could simply select to ‘switch on’ insurance data provision.
The industry also needs to increase awareness of vehicle data – from what data is produced to how it can be used to benefit drivers and businesses. The rise of the connected car will once again be instrumental in this process. Although it will be a long time before all vehicles are connected, once the market sees the benefits of sharing data the pressure will be on to make these services available in all vehicles.
Dealers are already able to fit aftermarket units, the question is who funds this? Sharing the data that comes from these units could be a solution to bring the rest of the market online.
If the level of data they’d receive from the customer vehicles encouraged dealers to cover the cost of installing the boxes, the cost to insurers could again fall.
Sharing data is key
But why would they do that? Car engine status and maintenance information can be made available to dealerships, if authorised by the car owner. When garages or service centres know in advance about any potential problems with vehicles, they can provide better maintenance support. By using data to predict potential problems they can be better prepared to offer the right service at the right time to their customers.
UBI has the ability to revolutionise the insurance market, but we are still in the early phases of this technology. Once the model is clearer and insurers are geared up to handle the data, for those that already have telematics units installed in their fleets, it could be a simple process of selecting what data they want to share with the insurance companies.
As connectivity increases and we understand how to choose and share the data generated from this, new business models will be born and significant benefits passed down to customers – the insurance market already looks set to benefit.