Featured Insights

The Automotive Telematics Insurance Market 2015-2025

 

Visiongain forecast that over $60billion of automotive premiums will be generated by the Telematics Insurance market by 2020.

Expert Opinions – Intelligent Mechatronic Systems (IMS)
Visiongain spoke to Christopher Dell, Senior Director of Product Development & Management at IMS.

Intelligent Mechatronic Systems Inc. (IMS) is an innovative provider of connected car technology, based in Waterloo, Ontario, largely considered to be the “Silicon Valley” technology hub within Canada. IMS is comprised of skilled individuals distributed across key engineering and support centres in North America, Europe and the Middle East. From IMS’ early success in developing automotive safety products, the company is dedicated to driver safety and intelligence, evolving beyond vehicle component applications to include award-winning connected car solutions. These are designed to enhance driver behaviour, improve productivity and make it safer for drivers to acquire and manage critical information efficiently whenever required.

IMS has developed a strong portfolio of over 165+ connected car parents and patents-pending. The company’s approach of converging in-car infotainment, automotive telematics and wireless technology has resulted in a wide range of solutions (including usage-based insurance), most prominently available through IMS’ DriveSync connected car platform, which builds on over a decade of IMS proprietary technology and research and development conducted within IMS.

The full suite of services powered by the DriveSync platform includes:

  • UBI Intelligence: Enabling auto insurers to manage risks, delight customers, and help improve revenues and costs by creating uniquely targeted programs based on their needs and objectives, across both personal and commercial lines.
  • Young Driver Intelligence: An innovative product which coaches young drivers on driver safety, whilst providing parents with driver statistics and metrics.
  • Road Charging Intelligence: A unique, in-vehicle system which uses existing cell phone towers. It can be used for one to ten roads, or across an entire country, and can set charging parameters based on zones, mileage, peak hours or type of vehicle.
  • Fleet Intelligence: Including fleet vehicle tracking, vehicle health information, and driver behaviour monitoring.
  • Infotainment services: Technology for distraction-free text, email, and social network use; location sharing facilities; internet radio, and smart music play

IoT connected car solutions.png

 

IMS on their Areas of Expertise, and Involvement in Road-Usage Charging

Visiongain: Could you tell us a little about IMS’ involvement in the Automotive Industry? We are aware that you are a significant player in terms of the adoption of Road Usage Charging in North America.

IMS: We are involved in a number of different verticals; UBI, fleet, and looking towards consumer oriented telematics. We also participate in road usage charging. The big news on that front is the next step with the Oregon Department of Transportation (ODOT) which has generated a level of interest in a number of different areas. This work is spawning our second wave of innovation and a strategy that will move IMS beyond only deploying vertically oriented solutions. It has really opened up the door for what we’re calling our “IMS IoT Services Marketplace”. When we started working with the ODOT, a theme emerged and recurred with insurance carriers, and with others in different verticals that are evaluating how they can leverage telematics. The theme being that they want access to the data, but they have to make a business case work. These are the same forces driving the evaluation of mobile or hybrid strategies for acquiring data.

Our IoT Services Marketplace vision is about collecting the data in any given vertical. We will be able to license and provide access to other vertical services – for example, road usage charging, UBI, fleet management, young drivers coaching programs, emissions testing, dealer services, etc. This helps drive down the ROI because you don’t have to fund the entire cost of the device and the data connectivity – you may only have to fund part of it. What we are doing with ODOT is exactly that. Somebody may sign up for a service or device funded by the state, and with consumer consent, access to that data can be provided to the insurer for UBI.

These two areas are very practical and real examples of what we’re putting in place, and what we’re hearing from the market, as we’re developing our strategy and solutions.

 To learn more about IMS IoT Services Marketplace and its capabilities of collecting data in any given vertical, please contact us today.


IMS on their Concerns of Data Privacy in the UBI Space, and the Improvement of Consumer Perceptions in the Future 

Visiongain: Moving onto the market for Usage-Based Insurance, there are some restraints to adoption. What is IMS’ opinion on data privacy concerns? Many people I have spoken to on a day-to-day basis seem slightly perturbed by the idea that their driving data will be monitored and analysed. Studies suggest that around a third of drivers want nothing to do with UBI for this reason. What do you think are the steps which will overcome this? Will this be a major challenge to the industry?

IMS: If you look at the research, you will see that privacy concerns are decreasing over time and consumer sentiment is going in the right direction, with the levels of comfort increasing as more people understand the offer and accept monitoring in return for benefits. When Usage-Based Insurance was first introduced, people were concerned about it. There were concerns about the information that companies could access. Now, if you look at the same research three years in a row, the privacy barrier numbers are coming down significantly. Over time, we expect consumer sentiment will continue to move in the right direction. We are still very early on in terms of adoption of UBI. Specifically, approximately 30% of the population express reservations about it, but we only have sub-5% adoption in North America or even the UK in terms of UBI adoption. We have a way to go before being overly concerned about the long tail of the demographic. We feel some of that apprehension in the long tail will be mitigated as the market evolves.

When more people have access to connected car solutions from their dealer or straight from the automotive OEM over the next 5 to 8 years, consumer sentiment will become more universally positive. Drivers will discover what those connected services are and how they can benefit from them. We like to use the smartphone analogy when talking about privacy concerns and the range of applications that use location-based services. Many who feel nervous about telematics would be surprised to see what and whom has access to their location at any given time, and the fact that Google and Apple, could track them at a very deep and personal level. Yet many of us don’t even think about that given the extraordinary benefits and value of their services.

Another area we are investigating is the application of wearables, like the Fitbit. Consumers might be very happy about being able to track all of this information about themselves, but may draw the line when an insurance company comes in and says they can offer consumers a Fitbit. It’s funny how that subtle difference changes the value proposition, and how the privacy aspect changes things around and becomes a barrier. If on the other hand, Fitbit comes along and says “we have a partnership with these insurance providers and they can offer you a 10% discount for your life insurance because you look like you’re a good fit”, then suddenly consumers are extremely happy. It’s important how these things are presented.

I think over time, that 30% of reticent consumers will decline, spurred on by messages from automotive OEMs and others in the ecosystem who will be driving consumer solutions with a promise to improve safety, security, convenience and reduce total cost of ownership. In terms of what the insurance industry is doing as well, it will continue to focus on value-added services, how they enrich the overall driving experience, as well as the lifestyle.

IMS on the Consumer Awareness Surrounding UBI Programs and Their Marketing Challenges

Visiongain: Do you think there is significant user awareness regarding the benefits of UBI programs? Do consumers see price as the sole differentiator when it comes to auto insurance. IMS places a lot of emphasis on the value-added services which can be implemented through its DriveSync system. Do you think people place importance on these services?

IMS: This is a good question, and very timely. To use an analogy, I was at the TU-Automotive Detroit conference and was expecting to see something really revolutionary from a top tier OEM’s announcement of their Connected Car solution. They talked about a suite of services; things like driver behaviour, vehicle health, geo-fencing, and other, and then presented three-tier pricing from about $10 to $25 per month on one model to be rolled out across other models. I left feeling very underwhelmed, because we already offer many of those features and services. I bumped into someone from one of our top customers, and said that we (IMS) already offer many of the services the OEM just unveiled, bundled in with our UBI program which we offer at a discount. So here a major OEM is pricing services at about $300 dollars a year for its most enhanced service package, and we are bundling much of it now at no cost, along a with $200 insurance discount if you’re a good driver.

As an industry (and this includes IMS), we really need to raise our game in terms of how we promote its value. When I think of GM OnStar and the trouble they had selling their suite of services, it remains to be seen whether the OEM in question will be completely successful selling a significant number of subscriptions. I think the OEM’s price point and the consumers’ willingness to pay do not necessarily match. It also underlines the fact that that we are giving away a lot of functionality for free, and we really need to think about how we raise the bar in showing just how much value we provide. This is really relevant as a collective industry.

IMS on the Cost-Related Challenges Facing North American Insurance Providers

Visiongain: Where do you see the UBI market headed in North America? Does IMS have any expectations on the different methods of implementation of UBI programs over the coming years?

IMS: Yes, we do have certain observations to note. For example, the people that we deployed with 2-3 years ago, and even last year for that matter, continue to see really positive growth, and will continue to see major growth in those programs. We’ve also seen (and I alluded to it before) that the vast majority of these programs (save for a couple) are OBD-based today, and are starting to look at mobile as an alternative. This is because they’re struggling with the following concept. To be able to continue to grow, they need to be able to squeeze more on the cost side of the equation. One way they do that is to look at performing a cost takeout, whether it’s a monthly fee or the device cost. Obviously, mobile gets you the game in a lot of ways. With that said, some insurers are saying that they’re not quite ready to go down that route, and want to go down a hybrid path. So we have had customers go in both areas. Some customers say they still think OBD is the way to progress, and want an operator recycle program, which is where the device is put in the car for around 4-6 months, capturing and profiling the driver behaviour. Then, the device is sent back – this is very much like the Progressive model. Insurers look at those different models, or are starting to look at migrating towards some of these models, as a way to offset some of those costs.

IMS in the Potential for a Diverse Range of UBI Program Implementation Methods in the Future 

Visiongain: What does IMS expect to be the prevalent or dominant method of data collection in the future?

IMS: I would say that if our current discussions with clients are anything to go by, and looking ahead 2-3 years, an increasing number of future offerings will be mobile based, with more niche plays orientated towards hybrid data collection. However, when we talk to insurers, we make sure they understand that this is not an all or nothing proposition. This message seems to be resonating really well with some insurers; where a specific segment, customer or opportunity may require an OBD device, whereas in another segment it is sufficient to deploy a mobile-only solution. We have talked a lot in the industry about a try-before-you-buy model. Mobile fits great there; because you can understand a sample of data before transitioning them to a full UBI program.

If you look at young drivers, a lot of them have smartphones, are very tech-savvy and are in tune with installing and using different applications. They have fewer qualms with sharing their location, and are more likely to believe insurers are right to put a mobile solution in the car for insurance purposes. On the flip side, parents or the insurers may want to make sure that there is less opportunity for tampering, because some teens will figure out how to take advantage of the system. Having an OBD device reduces some of the opportunities for that negative aspect. Overall, there is a slight dichotomy there in terms of approaching this, so it really needs to be thought through. Another segment that illustrates the need to think about mobile very seriously would be high risk drivers that have a lot of accidents. The concern from the insurer perspective is “how do you get the right pricing?” If you price it too high, you could be pricing out the drivers who have had a turn of bad luck, and therefore are actually better risks than the previous claims history really shows. Price too high and suddenly they show up on someone else’s book of business. If you get the wrong mix however, your claims ratio may end up going in the wrong direction. So inserting an OBD device where you have higher policy values, and a desire to be able to truly understand the risk profile of that particular segment makes a lot of sense. Therefore, there are a variety of options which need to be considered. We have this conversation with insurers where we explain that it doesn’t have to be a case of “either…or…”.

I have talked about what we call the recycle model, where you insert the device for a period of time. When that device comes out, some insurers like to incorporate a smartphone app into the program which picks up on driver behaviour. This ensures that driving behaviour has not changed significantly. We are seeing a “mix and match” in terms of how we can deploy the different forms of technology to achieve these program goals.

IMS on its Strategic Alliance with Verisk Insurance Solutions 

Visiongain: Could you tell us about IMS’ strategic alliance with Verisk Insurance Solutions and how this helps IMS in its endeavours for UBI?

IMS: We have always espoused a model where we work with analytics providers and in-house actuaries, supporting them in terms of the development of algorithms. We also co-work with actuaries in terms of leveraging our solutions and capabilities. When we talk about these analytics partners, we had and continue to have a great working relationship with Towers Watson. Verisk also allow us to reach a different segment of the market, and this partnership enables us to focus on the telematics aspect of a UBI program. Verisk focuses on the analytics pieces, and together it creates a very synergistic relationship – which we are excited by.

Smaller insurers are saying that they don’t want to customise many things as they don’t want something very bespoke. Their primary desire is to have a product in market by 2016 or 2017. This relationship allows us to cater to these insurers. With Towers Watson, we had a very well integrated solution with an integrated sales process; we are doing the same thing with Verisk.

Ultimately, it’s up to the insurance provider to figure out how they want to create their pricing algorithms. IMS offers three different models – one model is where IMS’ key driving indicators and scores are used directly by the insurance carrier. The second model is where a chosen third party analytics provider such Towers Watson or Verisk are preferred by the insurance carrier, in which case we work collaboratively with both the insurance carrier and that third party analytics provider to ensure that the right information is being provided. There is a third model where the insurance carrier would like to take on more of the work themselves within their actuarial teams. We support all three of these models and actually have examples for those through our programs. The thing that’s important to note is that IMS’s approach is a very collaborative approach. We work in conjunction with the insurance carrier and partners in a very transparent manner. It’s the transparent nature of our collaboration with our insurance carriers and anaylitics partners that helps sets up apart from a typical provider.

IMS on the Potential for Data Standardisation Within the UBI Market, and the Associated Difficulties 

Visiongain: Regarding industry standardisation, is there any level of data standardisation which enables policyholders and insurers to benefit from that transmission of data? Do you see something like that happening in this space?

IMS: I think it will be a long time before we see that. I think the proliferation of different data options exasperates that. A couple of years ago, we were talking about that from a broker model perspective. The broker can help the policyholder shopping their driving data, between different insurers. It’s easy to see there is an advantage to the broker and an advantage to the driver to do that, and from an insurance perspective, as an acquistion tool. On the reverse side, insurers may not want to offer their data and enable switching barriers to be made lower. Insurers are already concerned about churn, so there is disincentive from that perspective. Of course, in the meantime, insurers are launching “try-before-you-buy” apps that offer the driver a profile of what they may save, allowing the insurer the opportunity to acquire the cream of the crop. From a consumer perspective, it helps the policyholder who desires better rates and provides them another way to shop around.

However, in terms of real data standardisation as mentioned before, I do not think we are there yet. When we talk about, for example, the difference in data sources, you need to start talking about mixing in automotive OEMs; then all of a sudden you have an entirely different assortment of data. This data may not necessarily be homogeneous; it may not relate to accelerometers but rather other forms of data relevant to the car, and standardisation becomes a whole lot more difficult.

IMS on Their Advise to Insurance Companies Entering the UBI Market 

Visiongain: To some degree, IMS’ success in UBI depends on the capability to support and enable improvement of insurance companies’ business performance. What advice would you give to insurance companies?

IMS: Our advice would be to not think of UBI as a situation of “either….or….” in terms of how they approach the opportunity. You would be surprised how many insurers zero in on a very specific idea of how they wish to implement UBI. We do not like to have the technology conversation first; we like to first discuss business strategy, because that drives the technology discussion forward. Many insurers are not engaging in that level of segmentation, or taking the time to be able to understand and position unique aspects of a UBI program. We realise they are trying to launch a program, but there is certainly a lot of opportunity to cater for different demographics; mature drivers, young drivers, “specific-need” drivers, small business owners, families. There are all kinds of different segments to break UBI programs down for. This is a tremendous opportunity to create solutions which really resonate to these consumers. Rather than taking a “one size fits all” approach, more profitable policies can be preserved. From a pricing perspective, this is a smarter approach.

 

White Paper – UBI Best Practices and Guidelines

White Paper – UBI Best Practices and Guidelines

DOWNLOAD