Insurance Business asked Jenny Malcolm, GPS Insight content marketing specialist, for her take on the adoption of telematics in insurance.
She shared her thoughts on the technology with us and how it will affect the delivery of commercial auto insurance. Read on as she answers our questions.
IB: What is the rate of adoption of telematics in the insurance industry based on your company’s experience?
JM: Telematics adoption throughout the insurance industry has rapidly increased over the past few years. Forming partnerships and utilizing telematics data provides significant benefits to insurance firms. Using telematics information to assess potential customers allows firms to lower their own risk and cost for insuring drivers. From a telematics provider’s perspective, working closely with insurance agencies helps provide insurance discounts to their customers. It’s a mutually beneficial partnership that won’t go away anytime soon.
IB: How can the adoption of telematics change risk models, especially the transition from using credit scores to usage based insurance?
JM: The use of telematics data absolutely changes risk models for both insurance agencies and businesses insuring their drivers. Usage-based insurance allows firms to price their coverage appropriately based on driver behavior. They can use telematics data to look at speeding, rapid acceleration, and harsh braking when providing rates. In turn, businesses can receive lower premiums when their employees drive safely, and they can use a telematics platform to ensure they do.
IB: What are the advantages of using telematics as a basis for risk modelling in insurance?
JM: One of the most significant advantages of using telematics as the basis for risk model insurance is that it helps shape better safety initiatives overall. Now that there are cost incentives associated with increasing fleet safety, it will drive current safety regulations even further. Improving safety is the ultimate goal of the partnerships between insurance firms and telematics providers, as well as reducing costs for their business and customers.
IB: What are the barriers to adoption of telematics, especially among common consumers? What are the most common causes for apprehension in adoption?
JM: According to GPS Insight’s recently released Fleet Management Technology Report, the primary reason fleets have not implemented telematics is budget. Many businesses don’t want another bill, but don’t understand that utilizing this technology will reduce costs significantly. This comes from reducing fuel and labor costs, maintenance costs, accident costs, moving violations, etc. Telematics software is easy to get a robust ROI from.
Along with budgetary concerns, a common barrier of using telematics is the fear of employee pushback. There are often misconceptions that the technology is “Big Brother” or used for punishment. The truth is that telematics information is used to reduce costs and increase safety, which is how it should be explained in the beginning. When employees understand how it is being used and the benefits involved, they are more likely to accept the technology.
IB: When do you expect telematics use to reach tipping point? What factors will affect its adoption?
JM: According to industry research, from 30-40% of all commercial and government vehicles in the United States are currently equipped with telematics. In the next couple of years, it’s estimated that this percentage will be closer to 50%. At this point in time, there appears to be a consistent rate of adoption with no indications of slowing down.
Once adoption hits over 50%, there will be a tipping point at which the use of telematics will be completely commonplace. Businesses that don’t use this technology will fall seriously behind their competition when that occurs. A grandiose comparison would be the adoption of desktop computers in the workplace. In today’s world, it’s basically unimaginable to think of going into the office and not using a computer. The use of telematics will be similar for fleets as they become reliant on the information. Even today, most telematics users would find it difficult to go back to traditional, manual fleet management practices once they have experienced the alternative.
IB: How is telematics more cost effective for delivering insurance both for policyholders and providers?
JM: Based on how safely drivers operate company trucks, businesses can expect to receive discounts on their insurance from 5-15% when using telematics. It makes a significant impact from a cost perspective to obtain insurance from a firm that offers this type of incentive for telematics use, especially for fleets with many vehicles or drivers.
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Five things you can expect from the auto insurance industry in 2017 – Part two
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