Craig Beattie, Information Systems Architect: Personalization in car insurance is just around the corner

In a 2013 survey in Latin America we asked CIOs about their views on the use of Telematics and UBI. We wanted to know if these were currently in their plans and if they believed that they would have any use and impact by 2016. Despite UBI and the use of Telematics has been well received in UK, Canada and the USA, we found that Latin American insurers were not so optimistic about it. Very, but very, few were in the process of investigating it or considering running a pilot, and the vast majority (overwhelming) said they were not doing (and would do) anything about it in the 3 year timeframe.

In our conversations with insurers some would be very cautious about how it could be introduced, particularly on how attractive this would be for a producer to sell. Particularly, successful incumbents reacted as if this had no chance to succeed and that they would not be the ones to try it, as they believed it would negatively impact their current portfolio (lose customers). Others would say that in Latin American countries the burglary component of the premium is significant, while the collision component not so much, and therefor UBI would not bring advantages in price to customers. All these typical reactions from incumbents to an innovative and disruptive idea that provides the means to personalize the rate to reflect the real risk that the driver represents. Pay as you drive, pay how you drive and more lately manage how you drive are value propositions that target to personalization (of risk) and loss prevention, two of the major trends we see in insurance in the future.

As any disruptive initiative, it only takes one to be bold enough and then change the dynamic of the market. We were conscious about some limited amount of initiatives that were being considered during 2013 in the region and our position was that the 2013 survey results would change completely as soon as UBI and Telematics was taken seriously in the region by at least one player (regardless of the size).

We also kept thinking about leading incumbents. Good for them if this did not succeed. But what would happen if they started losing the good risks towards an insurer with an UBI value proposition? For sure their revenue would be affected. But then, how would the leading incumbent’s portfolio look like if only the high risk drivers stayed? Not a pretty scenario, ha?

Some interesting facts that occurred since last year. The few pilots are taking shape; research is also indicating that in fact specific segments of customers pay more for car insurance just for being younger or a combination of factors that have nothing to do with the real individual risk; the use of telematics has seen its first implementation in a producer distribution model, moving away from being exclusively a direct insurance proposition (or targeted by a few specialized brokers); and last week Baseline Telematics, a leading provider of telematics based solutions, and Sistran, a leading provider of core insurance solutions, made available to Latin American insurers a combined offering with all the required technology for insurers to quote, sell and price insurance policies entirely based on the actual driving habits of a driver (mileage and behind-the-wheel behavior), which is obtained through a telematics device installed in the driver’s vehicle.

Guess what? Not surprisingly our 2014 survey (in edition) shows that, as we anticipated, the perspective on UBI and Telematics has changed completely in Latin America! Around half of the respondents indicated that they believe that in 2014 these technology will have some kind of impact or at least will be tried as a pilot, but most importantly, the view 3 years from now (2017) is that the majority believe it will be of use and impact in underwriting, rating and claims (against only 20% that indicate no use expected).

Solutions as the one presented last week enables monthly billing, with a variable premium based entirely on the usage of the vehicle (kms/miles) as well as the behavior of the driver (acceleration, braking and excessive speed). The objective is to attract the best drivers and rehabilitate (or eventually get rid of?) the more risky ones. The goal is to decrease exposure to risk (cost reduction), perfect your technical margins, and gain market share.

It seems now that the market has aligned in the right trajectory and personalization in car insurance is just around the corner. Will leading incumbents take their chances? Will this be the opportunity for others to grow in market share and quality of their car insurance portfolio? Does any of this resound familiar to you in any given market you may be?

If you are interested in the topic, feel free to contact us. Also, these are some of our reports related to this subject: