It’s a common enough picture. Joe, a young man aged 17, is keen to get on the road as soon as he can. He has passed his test and found a reliable, small car within his tight budget. Now he bumps into a major problem: the lowest insurance quote he can get is much more expensive than the cost of the car.
The reason for this is simple. Insurers typically use lots of historical claims data to create a collective risk profile. This means that, even if Joe is the best young driver around, the quote is going to reflect his peer group and this will generally mean a much higher than average premium.
By 2016, this picture will have changed dramatically with the introduction of new E-call (emergency call) legislation across the European Union. Designed to significantly reduce the time it takes for the emergency services to be dispatched to an incident, all new cars from that date must be wirelessly connected, automatically transmitting location data to a central control number in the event of an incident, ensuring that the emergency services are better informed to respond more effectively.
One exciting advantage of this is that drivers can give insurance companies permission to access a valuable new asset - dynamic, real-time data on driver behaviour. By combining effective high-volume data collection with the ability to translate this into meaningful insights, insurance companies will have the opportunity to understand risk at a much deeper level and so be able to develop policies in radically new ways.
For an industry short of innovation in recent years and under intense profitability pressure, the emergence of Telematics Usage-Based Insurance is great news. Although the legislation and embedded devices being mainstream is two years off, these benefits can start being realised today through a number of after-market device options already available. This allows insurance companies to accelerate the pace at which they can get new telematics usage based motor policies to market at a competitive price and so get ahead of the pack by fast-tracking costly development time.
Vodafone has taken advantage of its success in developing world-class Machine-to-Machine (M2M) solutions and joined forces with global actuarial specialist Towers Watson to create a comprehensive solution. By retro-fitting or self-installing a Vodafone Vehicle Connect device to existing models to capture per second data on aspects of driver behaviour such as speed, braking and acceleration, Towers Watson’s sophisticated analytics can then create a comprehensive risk scores, which insurers can then work into their rating cards and in turn design highly-personalised premiums for drivers.
Everyone wins. The insurer is able to understand risk at much higher levels of fidelity in attracting better risk. This leads to more personalised propositions rewarding better, less risky driving, which in turn improves loss ratios and increasing profitability. Evidence from the US shows that drivers like Joe are happy to be monitored in this way if the result is seen to be fairer and more personalised, with more affordable premiums. And the ability to influence driver behaviour has a positive impact on the broader community, by encouraging safer, 'greener' driving.
Early days perhaps, yet Vodafone Telematics Usage-Based Insurance offers the potential to create real differentiation in what has become a highly commoditised market. It creates the opportunity to move from a once-a-year relationship based on renewal to one of ongoing customer contact. In short, it completely redefines the way insurance companies do business with people like Joe - and all their customers.
For the bigger picture on how Vodafone Telematics Usage-Based Insurance is set to transform the relationship between insurance companies and their customers, contact your Vodafone account manager.