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.”