The auto insurance industry is facing an unprecedented number of challenges brought on by heavy price competition and increased claims costs. To counter this, the industry is now turning to new clever ways of using advanced analytics in order to be more competitive, and be able to better assess risk and pricing. One of the key technologies is internet of things (IoT), or more specifically telematics. With the power to understand in detail how insured items such as cars and boats are being used, a whole new arena is opening up for the technically savvy insurer.
Five persistent challenges
In many ways, we saw this coming. IoT is the promised solution component that could disrupt existing business models by lowering barrier to entry. New revenue streams need to be created from real time data and customers' response to them.
Unprecedented data will also test current data management practices, including issues around data ownership and associated regulation. Perhaps most significant is the threat of fraud and other security implications.
Ever since the first experiment by Progressive Insurance in 1998, almost everything has changed with telematics technology. Telematics has transformed into a fast-growing model that insurers across the globe are implementing. It has the potential to revolutionize the industry and give insurers a way to gain a competitive edge. Progressive Insurance, the pioneer in this domain, has forecast that 25% of the entire US auto insurance premium revenue will be generated via Telematics, representing more than $30 billion.
In the Nordics, until now the insurance industry is not one that has been characterized by fast paced innovation, but maybe that is about to change. I see one of the first sign in Folksam, now running a trial with Telia Sense to get the first Usage Based Insurance product out to the consumer market. This could potentially discount the premium by up to 20% if the customer is driving carefully. Mobila försäkringar is offering a similar concept, based on data collected from the users cell phones while driving.
Expertise and partnerships required
Information technology and analytics are essential tools to helping insurers succeed with these efforts, and SAS of course has all the capabilities needed – as well as a few references. Most notably, we have teamed up with Octo Telematics in Italy to offer analytics as an integrated part in their telematics platform. But the proliferation of advanced analytics use cases in an industry already heavily equipped with SAS technology and competence should present many business opportunities over the coming years.
We also see this as an eco-system play. No one insurer can possibly build or maintain the infrastructure to fuel. There are a number of possible partnerships that can drive data acquisition, custody and monitoring. These can be designed to enhance consumer safeguards while preserving data integrity. Most significantly, they can enable fresh revenue streams. Fleet managers, for example, will be interested in and willing to pay for, vehicle and driver performance.
Time to accelerate to the next frontier
With so many options available, I am optimistic we will see the industry in the Nordics transform itself from slightly boring to cutting edge in the near future.
Do you want to start a discussion with your Insurance customer regarding our capabilities in Telematics or Usage Based Insurance? This whitepaper "Telematics: How Big Data Is Transforming the Auto Insurance Industry" could be a good starting point.