Data & Analytics

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Saurabh Sharma
Saurabh Sharma
Commentary
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The Evolution of Telematics Opportunities

Auto insurers can collect and analyze data that will help to reward good drivers and punish offenders, but they need the right tools and strategies.

For years now, telematics has been used in both business and personal vehicles for everything from asset tracking to fleet management to general safety. Users of the popular OnStar service know that through telematics, car doors can be unlocked remotely, emergency personnel summoned in the event of a problem, and so on.

The arrival of the connected car, long touted by the automotive industry as the Next Big Thing, has increased both consumer appetite for, and acceptance of, in-car connectivity. While telematics is possible without the types of features marketed so heavily by manufacturers today, the introduction of mobile communications inside the vehicle offers opportunities to collect new levels of data that can be accessed in real time. For insurance companies, this translates into the ability to create an enhanced and more granular view of the driving habits of their customers.

Insurer firms rely on drivers’ behavioral information to understand expected claims costs and set prices accordingly. Until recently, such information about driver behavior was primarily restricted to police ticketing, accident history, and certain assumptions made by taking into account the driver’s age, gender, address, credit history, and even the color and other details of the car. While these metrics are helpful in painting a picture of a driver’s performance, they are limiting in that the information is:

  • Not directly related to driver behavior or weakly correlated at best
  • Overwhelmingly negative in nature, meaning insurance companies can only use them to punish a driver for poor performance, as opposed to rewarding them for adopting safe driving habits
  • Available for only a small subset of drivers who have committed offenses
  • Backwards-looking, meaning that a risky driver is only identified after a driving issue arises

[John Hancock Rolls Out 'Genius Bar'-Style IT Help Desk]

Telematics and big data change all of that, offering insurers a deeper peek into more detailed driving characteristics such as the speed at which motorists drive vis-à-vis the posted speed limit, cornering and acceleration tendencies, frequency of hard breaking, time of driving, etc. Insurance companies today have a new opportunity to collect and analyze behavioral data, better assess a particular driver’s risk, understand future risk factors, potentially weed out undesirable customers, and arrive at more accurate policy pricing.

Insurers can also use this information, not just to punish offenders, but also to proactively reward and incentivize good drivers with discounted rates, potentially earning greater customer loyalty and brand affinity. It also offers the insurer more positive touch points with the customer during the lifespan of their relationship.

There are three primary components required for telematics to become an effective tool for insurers. The first is the car itself. It must have the ability to measure performance and behaviors against the tracking metrics outlined above. The second is the connectivity aspect and the ability for data to be sent and shared with the insurer. The third is the analytics layer; that is, the ability to assimilate, correlate, and convert the collected data -- a fairly high volume of it -- into something that is practicable.

 

Saurabh Sharma is founder and CEO of Indus Insights, a leading Big Data consulting firm specializing in helping organizations use analytical and statistical techniques to improve their performance.

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Kelly22
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Kelly22,
User Rank: Author
11/26/2014 | 10:31:22 PM
Re: Telematics - now all we need to know is what to do with the information
I'd be interested to learn Saurabh's thoughts on this as well. While I can see how telematics devices could be tied to individual drivers, you're right that there would be privacy concerns involved. I'm not sure how many people would be comfortable knowing their every move is being tracked behind the wheel.
Nathan Golia
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Nathan Golia,
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11/26/2014 | 7:04:29 PM
Re: Telematics - now all we need to know is what to do with the information
Think about the Onstar program that GM runs, Roger. It's collecting all the salient information for a telematics insurance program. State Farm has a partnership with them to use it for that purpose.
Nathan Golia
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Nathan Golia,
User Rank: Author
11/26/2014 | 7:03:18 PM
Re: Telematics - now all we need to know is what to do with the information
That does create an interesting point, Saurabh: Is telematics about insuring a car or a driver? Think about the advent of wearable tech: Eventually telematics devices could be tied to the individual (though that does raise privacy concerns)
Nathan Golia
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Nathan Golia,
User Rank: Author
11/26/2014 | 7:01:57 PM
Re: Telematics - now all we need to know is what to do with the information
While drivers aren't being "punished" per se at the moment, some posit that as more qualified drivers get telematics discounts, base rates will have to be raised to continue profitability.
rogstahl1
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rogstahl1,
User Rank: Apprentice
11/20/2014 | 3:22:22 AM
Re: Telematics - now all we need to know is what to do with the information
Thank you Saurabh,

Is there any such telematics devices from insurers on the market today? And the setup that you describe with the onboard computer etc. Do you know any examples in some country where this is working ?
I would be very interested to know more about that if that is the case.
Roger

 
Saurabh_Sharma
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Saurabh_Sharma,
User Rank: Apprentice
11/20/2014 | 1:38:08 AM
Re: Telematics - now all we need to know is what to do with the information
Rogstahl1:

The way it works is that the insurer, with the policyowner's permission, install a telematics device in the car. This device connects with the onboard computer of the car and transmits data back to the insurance company, along with gps coordinates. Hope that clarifies.

- Saurabh Sharma

Indus Insights
Kelly22
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Kelly22,
User Rank: Author
11/19/2014 | 5:05:58 PM
Re: Telematics - now all we need to know is what to do with the information
Thanks, Saurabh, for sharing your insight. Big data has the potential to transform auto insurance; the trick is figuring out how that information should be used. Since many are still trying to figure out their telematics strategy, I think your tips to collect more data, and adopt a test-and-learn approach, are good ones. The more time and effort that insurers spend learning about data analytics, the better they will be able to develop their telematics strategy.
rogstahl1
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rogstahl1,
User Rank: Apprentice
11/19/2014 | 8:34:12 AM
Re: Telematics - now all we need to know is what to do with the information
How does the insurer get the data from the drivers car? Can anyone explain how that works?
Doesnt the car manufacturer own the data or the driver? That data has a value, who will sell it to the insurer?
How will these dynamics work on the "market" ?
Saurabh_Sharma
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Saurabh_Sharma,
User Rank: Apprentice
11/19/2014 | 2:03:09 AM
Re: Telematics - now all we need to know is what to do with the information
Thanks for your thoughtful views. I agree with you that one of the mechanisms by which risky drivers are being "punished" is through credits being taken away. Having said that, there are other approaches being used as well, including the loss of insurance coverage (e.g. a few insurance providers in the UK). Hence, I have broadly called all these actions as "punishment", via one form or the other.

You make a great point about different behaviors being measured by the same device. I think it is a wonderful example of how critical the analytics layer will be in telematics - can you infer differentiated behavior, especially when there are multiple named drivers on the policy? Can you then have a holistic view of the overall risk of providing coverage? Also, can you provide guidance to the main policyholder on how to reduce premiums (in your example, say by telling the dad that one way to reduce the premium would be to control when and for how long does the son drive the car)? The data is there and will increase over time - it is how we use it which will be the key.

Thanks for the comments again - very useful points.

Regards,

Saurabh Sharma

Indus Insights
janderson088
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janderson088,
User Rank: Moderator
11/18/2014 | 5:21:35 PM
Telematics - now all we need to know is what to do with the information
Very good article.

Please allow me to share my observations: "Auto insurers can collect and analyze data that will help to reward good drivers and punish offenders, but they need the right tools and strategies." I am not sure I see carriers 'punishing' drivers so much as they are "un-rewarding" them (taking away pricing credits awarded for signing-up...). I think the reason for this is that the industry is on a nascent journey of understanding beginning with how to categorize the data and more importantly, how to follow it through in a close-looped analysis (predictive position to reality).

One of the factors that is also inhibiting is that the Telematics does not describe driver behavior as much as it describes the behavior exampled when the car is driven. I think the 17 year old son taking dad's sports car for a ride may have the vehicle exhibit different patterns of driving behavior than dear-old-dad.

So, I am thinking that Telematics does not quite offer us the opportunity (yet) to "better assess a particular driver's risk,.." but it does offer the opportunity to "... potentially understand future risk factors," and "... arrive at more accurate policy pricing."

I am a supporter of the trend of Telematics for many reasons but understanding what it tells you verses what it does not will help us all.

 

 
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