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Although telematics has been on insurers’ agenda for many years, Accenture believes it is on the cusp of broad-based consumer adoption. Positive self-selection bias and lower premiums will drive uptake in the short term, after which insurers will use location-based value-added services to differentiate their offerings and broaden their appeal within the mass market.
From his viewpoint in London, Roy Jubraj, Managing Director Digital & Innovation, is convinced that telematics is a game-changing opportunity for insurers to transform the way consumers perceive insurance, and to reshape every aspect of the insurance value chain. However, this is not good news for everyone. Adverse selection will leave carriers that are slow to respond with a customer base increasingly skewed toward poorer risks. And even those that do offer a telematics-enabled product will potentially have to deal with the cannibalization of their existing customer base as profitable, lower-risk customers switch from standard to cheaper, usage-based products.
To succeed with this potentially disruptive innovation, insurers need to have a clear strategy and roadmap that views telematics not simply as a novel pricing mechanism for niche markets, but as a radical shift in the way insurance can be bought, consumed and serviced.
“Until recently, motor insurers priced their products in broad risk categories,” Roy says. “If you were a 28-year-old male, you could expect to pay roughly the same premium as most other 28-year-old males, unless you had a bad driving record.” With telematics, however, insurers are able to monitor the driver’s minute-by-minute activities: when he drives, where he goes, how fast he drives, and how hard he hits the brakes.
“Telematics has insurers starting to set up pilot programs, analyze data and study customer acceptance,” Roy notes. “No one insurer has all the answers yet, but there are big changes in the works.”
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April 9, 2014
The auto insurance industry in the U.K. is particularly fertile ground for technological experimentation. It has been hard for insurers to operate profitably in a market characterized by low customer loyalty and a high annual “churn” rate. Over the last 20 years direct insurers have gained significant market share, reducing the role of traditional insurance brokers. More recently, aggregators have rapidly captured a large share of policy sales in the U.K., by providing property and casualty, or general insurance customers with at-a-glance price comparisons. Almost 80 percent of UK motor insurance customers visited a price comparison website at some point when buying their current policy. (Source: Accenture UK FS Consumer Survey 2014)
In this environment, insurers are taking a hard look at the value proposition they offer their customers. They are also looking at their existing customers–hoping to learn more about their behavior, their preferences and their needs in the hope of strengthening their relationships and reducing churn.
“The focus on creating digital businesses is picking up speed among U.K. insurers,” Roy says. “There is a lot of activity in areas such as mobile applications, where customers can make policy changes, pay bills, and add coverage for vehicles by using a smartphone.” More advanced mobile applications enable customers to file first notice of loss (FNOL) when reporting accidents; to provide backup information such as photographs via smartphone; and to check on claims status.
As Roy notes, however, the real excitement in insurance is not as much about filing and processing accident claims, but about preventing accidents from happening in the first place.
Advances are taking place on several fronts, including:
Mobility. There is an explosion of self-service tools and applications that allow insurers to engage with customers in a completely different way. In addition to enhancing claims processes and increasing consumer awareness, insurers are seeking to engage with customers by providing new and regular services such as location-based motoring services.
Insights and analytics. These allow insurers to provide access to a wider eco-system of personalized services distributed to personal devices.
Customer-centricity. A combination of better understanding and closer, more personal relationships is enabling insurers to become truly customer-centric, improving service and reducing churn.
The telematics sector is still in its early stages; in the U.K., although there are around 20 different telematics offerings, they only account for between two and three percent of total auto insurance policies. However, it is a sector that is rapidly growing. Accenture is witnessing increasing numbers of new product launches and pilots across the globe, spreading from the more established markets of the U.S., Italy and the U.K. to become a truly global trend.
Roy and the Accenture team are helping U.K. personal lines insurers analyze and adopt suitable technologies to make the most of their digital investments. “Many insurers are hampered by legacy systems which have been built up over time through acquisition and accretion. To get the full value of the insights available through analytics—which depend on mastering data collection and organization—we work with clients on non-traditional approaches to dealing with data. Instead of creating data warehouses, for example, we can move right to the cloud to generate pattern recognition and visualization solutions that enable insurers to make better decisions,” Roy says.
Accenture has established a global steering committee for telematics and, at its Tech Lab in Sofia Antipolis in Southern France, is exploring a range of new mobile applications. Accenture has entered into a number of telematics-related partnerships and is helping U.K. insurers go to market with new offerings in this area.
“Telematics is a potentially disruptive technology which can deliver value to both insurers and customers,” Roy notes. “However, it’s part of a new ecosystem for insurers that encompasses better claims processing and service as well as underwriting. We’re helping to automate steps such as getting a replacement car dispatched in case of an accident, or providing immediate, accurate re-enactment of a driving mishap. Customers are seeking value from insurers and we’re helping insurers provide what customers want.”
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