Telematics: the new approach to the short-term mobility
Telematics, the pay as you drive model, opens new doors: new services, customer data and empowerment force a different dynamic. The technology approach to the mobility ecosystem short term future.
Throughout the years, we have seen the evolution of business models and technologies to follow the constant societal and economical changes, breaking traditional Auto insurance paradigms. Moving from standards risk profiling to behavioral models, in which businesses try to understand deeply customers and possible touch points in their mobility routines, we could observe that this market is not about the means people use to move, but people themselves, expanding the previous vision of a customer as just an asset owner.
The black box and complementary electronic connected devices provide a complete overview of the vehicle’s information: location, kilometers, engine status and velocity. Not only this corroborates the great value of this new approach and the B2B business opportunities it enhances, but do also funding. Investments in this technology evidence that black boxes are important; for instance, Bridgestone acquisition of TomTom telematics for almost $1B and Verizon acquisition of Fleetmatics for $2.4B.
However, when dealing with the B2C segment, what matters is not only what happens during a customer’s car trip, but also in every other aspect of their mobility routines. The usage of telematics through customer’s smartphone sensors give more contextual and behavioral information. It can evaluate if someone is alone in the car or if there are other members of the family, or whether if the driver stops at school before going to work. This creates a holistic view of customers’ daily routines, improving the quality of actionable data to enhance the customer experience. Plus the driving scores – that calculates driving risks such as phone handling and aggressive acceleration- that allow better segmentation, attract better drivers, and perform more efficient claims, fraud detection, more accurate and agile underwriting. Therefore, customer data not only becomes the core variable in the ecosystem, but also who owns it. The fierce competition for data was translated into new customer approaches joining customer’s empowerment and technology. To give the decision power to consumers to choose exactly what they want has been proven valuable for both customer and businesses, allowing insurers to collect trustworthy information and provide more value for their clients that are willing to exchange specific data sets for valuable products, services or insights (known as “Nudge Me” or “Augment Me”).
Telematics and insurance position
Telematics seems to have a very high potential to change how Auto insurance is understood nowadays and the impact in its players. Mobile telematics, especially, allows insurers to develop new business models with high scalability, as it is basically an app in the consumer’s phone, improving overall customer relationship and product design.
(1) Who owns customers data: This is crucial to understand customer’s lives to personalize and develop services and products, enhance customer experience and unlock potential customer positive touch points.
(2) New opportunities–services: More data and customer information opens opportunities to new businesses. New services are an option to expand traditional business models, using actionable data to offer additional value from existing products.
(3) Customer empowerment and holistic view: this goes hand by hand with mobile telematics functionalities such as the customer decision to use it. The detailed information on customer mobility expands the business scope and cross-selling opportunities.
Coming from the vehicle-as-an-asset perspective, insurance companies have the opportunity to apply a customer-centric approach, collecting and using data to improve every aspect of their business and attend different necessities through new customer datasets. However, companies in the soft spot must use customer data to create value for the end user in order to keep high engagement and healthy data exchange to solidify this relationship.
Investments in telematics has been relevant, attracting large resources. Cambridge Mobile Telematics received $500M around 2019 and counts with large partners such as UBER and MS&AD Insurance Group Holdings in order to collect information from the end user.
Other examples include Car Manufacturers and Telecommunication companies that have been investing in companies related to telematics: Verizon investments in Telogis and Fleetmatics, AT&T in Fleet Complete and GM investment in Nauto. In 2018, the European Union made ecall Systems mandatory in new vehicles to speed up the accident response time in EU roads with telematics solutions, showing how this technology can support smart cities on the future and the long-term return from telematics.
In the American Auto Insurance landscape, we can see clearly the trend:
The market is using both approaches, with more focus depending on the segment. In fact, CEO of Allstate, in 2018 earning call said: “I believe that, in the future, (telematics) will be the primary driver of insurance pricing in auto insurance, because it’s every bit as powerful as credit and those who have been hanging around auto insurance like I had for a while credit, sort of, ripped through the industry and pricing in the early part of the 2000 and this is a little harder to implement because it requires the customer to do something rather than just buying data from TransUnion or some like that, but it’s equally as powerful. So, it will happen.”
In line of Allstate, Progressive, one of the largest Auto insurers in USA, points telematics on their core Auto products mentioning in the 2019 annual report: “Another key component of our 8.6 product release was to enhance our Snapshot® usage-based insurance (UBI) program…” and the fast Snapshot traction: “During 2019, more than a million new customers enrolled in our Snapshot program. This new offering elevated to 12 states during 2019 and will continue to roll out throughout 2020, which will further expand our UBI footprint and help more drivers save money by switching to Progressive.”
Whilst, the company pointed in a 2018 report that “Every year, we collect billions of additional miles of driving data, which helps us advance our segmentation and pricing sophistication” and in 2017 the company claimed to collect 22 billion miles of driving data. The telematics initiative has been mentioned as key element of Progressive’s last reports and it helped financial results in Personal lines to reach more than 30 billion dollars in both net Premiums earned and net Premiums written.
The Telematics topic has been around for 10 years, but the aforementioned movements demonstrate that increasing efforts are direct to have a broad usage of this technology in the mobility ecosystem. This fact is an evidence that the ecosystem might be transforming and getting ready to widely accept this technology and Insurers may lead the way given the American example.
Recent customer centrism movement and business models that has great telematics application such as UBER, non-American Insurers are also moving forward to apply this technology in their businesses. For instance, Zurich partnership with Greater than – SaaS platform based on mobile telematics – to implement telematics in its partners and Zego with Abax (UK telematics solutions with drive scoring and vehicle tracking), illustrated other regions efforts around telematics.
Moreover, the COVID-19 pandemic and its consequences (explored further in the section dedicated to smart mobility) that changed the mobility habits, business models such as car sharing, lower car sales projections, fleets tracking and data collection allowed by use of mobile telematics, strengths the power of this technology on the coming years.
The new perspective
Connected cars will give a brand new perspective in the meaning of vehicles and M2M segment, in which machines and connected devices exchange information with each other. Telecoms, TechGiants, Car manufacturers and integrators will compete in the mobility market as technology inside vehicles becomes more important than driving performance.
Companies like Waymo by Google, Tesla and Verizon are three odd competitors that will surge from the new perspective that will endure the competition in mobility and close the gap between Property and customer that was previously explored. This new framework can turn telematics application as the market knows obsolete and transform it completely, pressuring insurers to make efforts to be more customer-centric and so adapt themselves to this transformation. A new paradox is leveraged, then.
Telematics is on rise, the fast transformation of mobility will bring both challenges and opportunities with the same intensity. As pointed out in NTT DATA's Insurtech Global Outlook 2020 report, the auto dilemma:
Due to changes in VUCA (volatility, uncertainty, complexity and ambiguity) framework and constant shift in customer’s preferences, Insurers have the challenge to find new ways to collect customer data and reshape their products and services with portfolio diversification, underwritten and pricing optimization based on customer’s relevant data. The new exponential technologies enable Insurance Companies to attend all of these challenges, but it implies to acquire new capabilities, or integrate these capabilities from others, along with its traditional value chain. This mobility ecosystem will incorporate new actors. And those existing to date will have to give up part of their value chain to be transferred to the new ones. In this scenario, startups and companies that offer value through new technologies will occupy a relevant space in the ecosystem. What is certain is that many companies will have to change their current focus and move from offering their traditional portfolio to become value service providers for the new consumer.
The constant changes are better understood when we use the concept of living ecosystem, where the movement of agents are not restricted by their current respective business model and the traditional Value Chain vision does not exist.