In a recent report entitled "Telematics-Based Insurance: Has Its Time Finally Arrived?," Catherine Stagg-Macey of Celent states that insurance policies incorporating telematics-derived driving data are here to stay. She also notes that there remain several considerations for carriers to address as this market matures. We agree – and believe that one of the most important considerations is developing telematics solutions fit for production, not just pilots. Put differently, in order for telematics to become a mainstay across the insurance industry, a few key questions must be answered regarding long-term scalable execution, rather than short-term, limited data tests:
1. How can large amounts of data be collected and administered cost-effectively?
2. How can data be best used to make business decisions over time?
3. How can solutions align and adapt with broader business strategies?
Ultimately, mainstreaming telematics is about addressing these challenges through efficient investments, actionable insights and strategic advantage. Together these components build a fuller picture of lasting success in telematics-based insurance.
Cost Efficiency for Broad Implementation
For carriers considering operationalizing telematics, the first hurdle is a big one: it costs a lot of money to collect the data, and even more to process it through production data centers. Therefore telematics-based insurance must become significantly more cost-effective to be broadly implemented.
One way to eliminate the upfront expense of telematics hardware is through mobile technology. According to the Cellular Telecommunications and Internet Association (CTIA), there are more cell phones than citizens in the U.S., and smart phone capabilities are evolving at an amazing rate. Mobile phones can be used as cost-effective, easy-to-implement methods for collecting driving data (with consumer consent). Network-based solutions are least disruptive because they rely on already-in-use network infrastructure, while apps installed onto smart phones can provide richer driving data.
But data collection is only the initial investment; production models and live telematics data feeds require significant technology infrastructure. As telematics data volumes increase exponentially, carriers will require "Big Data" horsepower to securely query, process and enhance petabytes of data daily. High-performance computing cluster systems have been processing data on an enterprise scale for over a decade and support millions of database transactions per day. Such systems can control costs while easily processing the oncoming telematics data avalanche.
Confidence, Credibility & Actionable Insights
The value of scale carries over to analysis, not just storage and administration. If the insights derived from telematics data are to inform truly game-changing business decisions across the industry, then models and results must be credible and reliable at the collective level.
There are two ways to make this happen. The first is to examine telematics data in the context of the entire risk spectrum, including non-telematics data. Enriching telematics data with other valuable data will create more complete models and help better benchmark driving data with more established actuarial variables, as well as help to segment customers in new ways.
Contributory databases are another way to generate the fuller context needed to support decision-making. Getting a better picture of how results compare to trends across the industry allows carriers to gain perspective and adjust their offerings quickly. In the contributory model, every piece of data contributed becomes more valuable than it would have been on its own because it enhances collective understanding and adds incremental context -- with this comes the confidence needed to make important decisions in an evolving market.
The Strategic Advantage: Evolve, Adapt & Refine
Underlying all of what we've described here is an appreciation for ongoing strategic advantage. The telematics value chain should position carriers to evolve and adapt their telematics programs along with business needs. Mobile technologies are ubiquitous and improving quickly; a robust HPCC infrastructure provides flexibility to store, transform, and relate different kinds of data over time; telematics data enrichment unearths new connections and segments; and contributory data accelerate an understanding of context and industry trends.
Taken together, these solutions help carriers future-proof their telematics programs. Rather than locking carriers into a narrowly designed program, these solutions enable them to incorporate new technologies, data formats, and analytical insights into their strategy. For example: enriching telematics data with other consumer information can help inform marketing models to figure out who is likely (or unlikely) to opt into telematics-based insurance programs.
It's also important to keep a pulse on telematics market changes through research and industry surveys. Old fashioned business intelligence still has a role to play here, and shouldn't be overlooked as a way of gaining strategic insights. Regular touch points with customers and other industry stakeholders in the complex insurance telematics ecosystem are important to maintain perspective on this evolving market.
Keeping Telematics in Perspective
Telematics-based insurance is here, but must move beyond pilots to a broad implementation of telematics founded on the cornerstones of successful production: efficient investments in data collection and administration, scale and context in data analysis, and a strategic understanding of telematics' role in the insurance workflow. The future of telematics-based insurance lies beyond pilots and with solutions built around these essential components of successful production.
About the Author: Ash Hassib is VP and general manager of the auto insurance vertical within LexisNexis. During the last 7 years, he has been involved in developing new products that benefit the insurance industry. He is also responsible for business development and partnerships that strengthen the auto insurance offerings. Hassib has also been involved in shaping the company's position regarding legislation and regulations that affect the auto insurance market. Prior to his current role, Hassib founded and led a management and technology consulting firm.