Last week Novarica published our updated report on automotive telematics. Researching and writing for this report was particularly fascinating—not just for how much activity is happening around telematics right now, but also for how telematics offers greater insights into the intersection between insurance and technology.
Telematics is at a fascinating juncture. Recent technological advances have made it easier for insurers to enter the telematics space, and more and more vendors have offerings for insurers at every level of engagement. Along with this potential to expand, carriers and vendors are exploring new ways telematics can be applied, particularly to claims.
Speaking more broadly, though, telematics is a great case study in how the modern insurance industry is encountering technology.
Technology generally affects insurance in three ways:
- Improve: Technology makes an existing insurance process cheaper or more efficient.
- Expand: As insurers gain familiarity, they find new ways to apply the technology beyond the original use-case. New insurance services are improved or enabled.
- Transform: Technology creates totally new service offerings and value propositions, or it allows existing service offerings to be assembled in new ways. These may be outside the scope of the traditional insurance proposition.
And telematics is currently doing all three of these things:
- Insurers with telematics programs are seeing improvements in their underwriting and risk evaluation, and some are experiencing better customer engagement, retention, and loyalty.
- At the same time, carriers are expanding their telematics use cases beyond offering discounts to better drivers. Players are beginning to explore how telematics can streamline or improve the claims process through data streams or preferred repair network coordination.
- We’re also starting to see initial transformation as carriers experiment with telematics-powered bundled-service offerings and driver improvement programs. These added-value services move carriers out of the traditional space of risk underwriting, but just because they’re not traditional insurance products doesn’t mean they can’t be good value.
The larger point is that understanding and engaging a new technology isn’t just a question of what existing processes that technology can improve, even though those applications can generate the most immediate value and lend themselves most naturally to business cases. New technologies also offer insurers opportunities to realign or reinvent themselves.
It’s also not just existing carriers who can use technology to transform. New entrants to the insurance space are using telematics to enable new kinds of insurance offerings—we call this kind of innovation from outside players “disruption.” Root Insurance, for example, has designed their insurance offering and their marketing from the ground up around a telematics-enabled driver score, and the company’s positioning orbits around this “good drivers pay less” value proposition.
Where telematics is concerned, I think there’s lots of potential applications yet to be piloted or yet to be conceived of. I’m excited to see what insurers experiment with over the next five to ten years.
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