Personalized premiums are an industry prediction that has become a pretty safe bet! Big data, cloud, mobile, wearable’s, Internet of Things are all highly used buzzwords for the technologies that are changing the way insurance is calculated and distributed.
And one of the biggest areas of massive growth that is going to impact motor insurance is the adoption of telematics. Nora and Alain Minc first used the word in a 1978 report to the French Government but today, it is synonymous with the collection of data that defines and determines a driver’s risk profile behind the wheel for an insurer.
At the end of 2014, there were a relatively small number of telematics drivers in Europe at around 4.8m. In the US, the adoption rate was also small at around 2%. However, according to the EY report “The Quest for Telematics 4.0”, this is set to change with penetration of integrated telematics to touch 88% of all new cars by 2025. This massive growth will be driven by two significant factors, namely, (a) the growing importance of smartphones in everyday life and (b) regulations for improved driver safety.
Smartphones, by their very mobile nature address one of the barriers facing the early adoption of telematics, which was the reliance on a hardware solution fitted to the motor vehicle.
In the UK and the US, the cost for installing a “black box” was somewhere in the region of $200 to the insurer, which in many cases, negated any pricing benefit derived from it. Lower costs solutions, such as Metromile’s hybrid approach of a dongle together with a mobile app go some way towards addressing this cost issue.
Another barrier for the pure hardware solutions is that they plug into the car’s data or OBD (“On Board Diagnostics”) port. The problem with using this source of data is that car manufacturers did not create the data to be used in this way. So, the hardware solution relies on software to interpret the data and derive driving behavior information.
Which in turn, imposes more limitations on this approach. Such as, the hardware solution can determine speed but not whether the driver was breaking the speed limit. Or, it cannot determine if the driver is driving safely at a modest 50 miles an hour on a straight road or dangerously fast around a sharp corner.
And it is this focus on the safety element of telematics, rather than lower insurance premiums, that has been the focus for regulators. The European Commission’s ‘Digital Agenda for Europe” has set a goal of all new cars produced in Europe to be equipped with telematics by 2020. The first step in this eSafety initiative is the introduction of eCall. This was originally scheduled for the end of 2015, but, as is the way with new regulations, they require local legislative changes and are subject to delays. As a result, the Commission has extended the deadline to 2017/18.
eCall is an initiative with the purpose to bring rapid assistance to motorists involved in a collision anywhere in the European Union. The system will either be activated by a button in the car or automatically in the event of a collision firing the airbag. The eCall service will trigger a call to 112 and send data about the whereabouts of the vehicle to emergency services.
The other area of much debate is data privacy and ownership of the driving data. In Italy, where penetration of in-car devices is around 1/3, insurers are allowed to access data to assign fault after an accident. In Germany, the debate amongst the industry is in full flow and is heading towards the view that data, first and foremost, belongs to the driver.
However, this is a massive subject for another day and I will return to it another article. Just as I will also return to the subject of cyber security and the ability to hack into and take control of the car through the in-car hardware solutions (see reports of a hack on a Jeep Cherokee).
This week the focus is on improving driver safety and its link to personalized insurance premiums. And to help me tell it, I Skyped with Igor Katsman, Founder and CTO of Silicon Valley based DriveWay and Roman Glukhovsky, VP of Business Development for the firm.
DriveWay hit the news 2 weeks ago when they announced they had raised $10m in their second round of fund raising with Roman Abromovitch backed Ervington Investments. This follows a seed raise of $1.3m two years ago with three VC firms.
Igor explained how he started around 2006/7 with a desire to build a solution that would make the roads a much safer place to drive. Back then, he built his first prototype on the Symbian operating system for a Nokia phone that just contained an accelerator, GPS and a few sensors. These were the days when a phone was a phone and nobody had any idea that one day making a call would be one of the least important considerations for your phone!
Even though the technology was limited back then, the goal and vision was the same as it is today. By using technology to provide real-time, meaningful feedback, the driver can be educated and informed in a way that makes them a better, safer driver. And in the process, they reduce the cost and risk of driving for both the individual and the employers alike.
Today, DriveWay’s first application is in the insurance market, where they provide a white label platform for insurers to build their own apps around. Already, with 250,000 downloads under their belt, DriveWay are providing insurance carriers with a big data cloud solution, supported by over 700 sophisticated algorithms to provide an enterprise-class mobile platform.
Igor explained how sensors in a smartphone produce “noise”. By using complex algorithms and the data from multiple sensors, the DriveWay app can eliminate the noise. This enables them, for example, to determine the subtle differences between the rapid movement of lifting the phone up to take a call versus the equally rapid motion from speeding around a corner.
Essentially, DriveWay comprises two parts. First, there is the smartphone that collects and analyses driving data and provides real-time feedback to the user. DriveWay’s users already report a 30% improvement in their driving behavior.
Secondly, DriveWay is a big data cloud and analytics platform. This engine has already collected half a billion driving miles of data. This data has been used to build actuarial risk and pricing models for use by underwriters as they develop personalized pricing models.
Beyond insurance, DriveWay’s platform will provide fleet managers of all shapes and sizes with valuable information about how their fleet of vehicles is being driven. Not only does this focus on safety reduce the accident rates, it also reduces fuel costs through better driver behavior. Roman explained, “we’ve started to see Fleet Managers use our platform to run a monthly competition amongst their drivers for who can return the best fuel economy. The winner gets rewarded and the Fleet Manager sees overall consumption decline.”
When we discussed the differences between hardware and a smartphone solution, Igor explained. “smartphones are much more flexible. For a start, they are an ‘opt-in solution’ (an important point in the data privacy debate). With DriveWay, we can also be selective about the data that is shared. For the father monitoring his son’s driving, he only needs to know whether he exceeded the speed limit, not that he drove to McDonalds. There’s a line between need to know and intrusion!”
There is no doubt that the smartphone will drive up user adoption and overcome the barrier of the installation and cost of the hardware approach. And given that it is likely to be best part of a decade before telematics capability is universally available in our cars, then smartphone based telematics is looking at an open road to bring this into the mainstream.
And with the move to personalized premiums well and truly underway. It is only a matter of time before insurance premiums are based on risk factors directly connected to, and dynamically adjusted for, our individual driving behaviour. Then, our individual driving score becomes the basis upon which we buy motor insurance, in the same was as our Experian credit score is the basis upon which we borrow money.
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