Telematics—Obstacles to Mainstream Adoption
In my previous post in this series I explored the factors that could drive widespread adoption of telematics in the motor industry. As of now, it accounts for a tiny part of motor insurance policies, even in the markets where it has gained the most traction.
In the UK—one of the more developed telematics markets with around 20 different offerings—telematics is estimated to account for only 2-3 percent of motor insurance policies. In other parts of the world there are big players such as Progressive in the US and Unipol-Fondiaria Sai in Italy with around 1 million customers apiece on telematics-driven products. But the market as a whole remains immature and relatively small.
The reason for this is that insurers are still grappling with a range of strategic, technological and regulatory issues. Before they can make telematics a mainstream proposition, they must first understand consumer perceptions, driver psychology, and how to effectively use telematics technology.
Among current offerings there is little standardisation in the technology, in the data that is collected and analysed, or in the benefits that are promoted to consumers. Some questions insurers must answer before broad-based telematics adoption will become a reality include how to:
- Overcome consumer-privacy and data-ownership concerns.
- Get an accurate picture of overall driving behaviour in light of positive self-selection.
- Balance the risk-reward in a compelling manner so that consumers are able to see past the intrusiveness and financial ramifications of continuous driver monitoring.
- Incentivise all consumer groups through more personalised and innovative services and offers in addition to reduced premiums.
- Create value from the vast amounts of data captured.
- Make the economics work,
To navigate the future of telematics in the motor insurance industry, insurers must cut through the hype, consider the different scenarios for the future of this sector, and ensure their business is ready to tackle the resulting implications.
In my next post I’ll look at two likely telematics scenarios that may unfold over the next few years, and their implications for insurers. In the meantime, if you would like to read the earlier posts in this series, you can find them here. Or for a detailed look at this topic, look at our report, Insurance Telematics: A Game-changing Opportunity for the Industry.