Telematics—Preparing for the Tipping Point
As I’ve said in earlier posts in this blog series, insurers that ignore telematics do so at their peril. It is neither a fad nor a mere addition to insurers’ pricing and underwriting capabilities. Looking at my home market of the UK, I have already seen prime examples of how new telematics-driven models can revolutionise the private motor insurance market.
While there are structural factors particular to the UK insurance sector that have made these market shifts possible, it serves as a useful benchmark for the extent of change that is possible. We estimate that in our high-road scenario (see part 6 of this series for an overview), telematics could account for 40 percent of the UK market and £4bn (US$6.7 bn) in premium income by 2020.
If telematics accounts for only 5 percent of the market by this time—our most extreme low-road scenario—it will account for £500m ($840m) in premium income. Even in this low-growth scenario, telematics will undoubtedly act as a catalyst for new entrants and innovative business models.
New entrants and players outside the industry, unconstrained by existing market structures or legacy, will take advantage of technology advances to shake up the market. Insurers that do nothing risk being left behind.
I would argue, therefore, that all motor insurers should have a strategy and a roadmap in place for telematics-supported products. There are three strategic options for insurers:
1. Wait-and-see: Follow the market when the time is right.
2. Dip your toes in: Take an interest in and experiment with telematics at the periphery.
3. Jump in – feet first: Gain first-mover advantage with pilots that prepare for scale.
While all of these strategic options are currently in play, insurers are still too narrowly focused on telematics as a pricing mechanism for niche markets, rather than as a complete shift in the way insurance can be bought, consumed and serviced. In spite of the uncertainty surrounding the future size and shape of the sector, the tipping point is near.
Telematics provides the opportunity for insurers to get much closer to their customers and gain a far richer understanding of their needs and motivations. Through the data derived from telematics, insurers can not only develop and enhance customer ecosystems, but also gain invaluable insights for the development of the underlying insurance product.
Together all of these have the potential to fundamentally shift the role of an insurance company in the eyes of consumers and tackle the ever-increasing retention issue.
I hope you found this discussion interesting and useful. To view all of the posts in this series on the Digital Insurer, click here.
Read the Insurance Telematics: A Game-changing Opportunity for the Industry report here.