Future Outlook of Telematics and the Insurance Industry
Having a deep understanding of customer behavior is propelling the insurance industry forward, especially with the help and advances of telematics. Within the auto industry, insurers are privy to information such as speed, location, weather conditions, road conditions, surrounding objects, time of day, vehicle health and even the physical condition of the driver. Mark Fitzpatrick, Senior Research Analyst at LendingTree elaborates on with all this information, where will the industry go next
Technology has always been a disruptive force for insurance companies. Perhaps ironically, while some insurance businesses have been major champions of technological innovations, the industry is often slow to respond to major shifts and consumer demands. This is especially true when it comes to telematics, a niche digital technology making some headway in the insurance industry— especially the auto market. While it is likely to see an expansion of telematics in the coming decade, it may also be some time before this unique, data-focused technology creeps into all parts of the insurance market.
How does telematics play into auto insurance?
Strictly speaking, telematics is a field that combines telecommunications (commonly GPS) with vehicle technology to draw insights from and deliver services to vehicles. The concept is far more expansive than the core definition, however. At present, the term “telematics” is used to describe everything from autonomous vehicles to built-in emergency roadside assistance.
The most important aspect of telematics, however, is the combination of different technologies to deliver massive amounts of data across various data points. Details such as speed, location, weather conditions, road conditions, surrounding objects, time of day, vehicle health and even the physical condition of the driver, among many other points, can all be collected and parsed through telematics.
How is the insurance industry currently using telematics?
The insurance industry has always been a fan of big data. Every facet of the industry utilizes trends in data to make decisions, including pricing, rate setting, marketing, and underwriting.
Telematics offers the insurance industry yet another avenue for data collection and usage. In its present form, it’s found the most favor and usage among auto insurance providers. Most major companies in the auto insurance market, including Progressive, Allstate, and State Farm, each has telematics-based programs in place for customers. These programs typically use GPS-enabled mobile apps or what’s known as on-board diagnostics devices plugged into the car that monitor and feed data back to the insurance companies.
Through these programs, consumers can save money by driving at or under the speed limit, for example. Some programs may even provide drivers discounts for driving at safer times of the day or may track other more granular points, such as acceleration speed and braking to provide data-focused discounts based on safe driving habits.
These programs are heavily consumer-focused (especially notable for higher-risk and young drivers who qualify may benefit most from usage-based insurance), but they offer an interesting use-case for how different types of data can be merged to provide greater insights for the insurance provider. And while the benefits of these cost-saving insurance programs offer obvious benefits to consumers, they’re extremely beneficial for the insurance companies providing them.
By utilizing telematics-based savings programs, insurance providers can reduce some of the common risks associated with insuring drivers, leading to fewer claims. Passing those savings on to consumers makes sense to encourage more program sign-ups and is a relatively low cost to obtain so much information.
The future of telematics is in health insurance
For now, the type of Usage Based Insurance(UBI) found in the auto industry is not widely applied across other insurance markets, and with good reason. Most of the data points used by auto insurance companies are hard to apply elsewhere. After all, home or health insurance providers would find little use for GPS or speed data.
However, the industry may not be far from seeing health insurance companies adopt telematics-based data, at least in part.
Health insurers have long used data to determine the risks associated with insuring each individual. Data is often incorporated into even the more basic decisions facing health insurers, including whether or not to extend coverage to an individual. Businesses in the health insurance industry typically create profiles of applicants, with crucial factors like age, medical history, smoker/non-smoker status and other points used to set rates and accept or deny coverage.
With telematics, health insurance providers can gather similar types of data through fitness trackers, like those available through Fitbit or Garmin. Various health-related data points, such as distance traveled, elevation gains, and active minutes can be combined with other health factors. Insurance providers can then use that data to provide activity-related incentive programs or offer discounts for new insurance applicants willing to share that type of data.
The concept isn’t as far-fetched as it may seem. In 2018, Blue Cross Blue Shield partnered with Fitbit to offer discounts on Fitbit fitness trackers. Responding to the trend toward health telematics, Fitbit now sells a version of its tracker called Inspire that is only available through company-sponsored health plans or directly through health insurance providers.
The health insurance industry is a natural extension for telematics. Health science is increasingly pointing to physical activity as a key factor in good health and long life. Businesses see and reap the benefits of healthy adult workers, so monitoring activity levels through popular wearable tech provide an easy entry point for everyone involved.
Insurance companies may see major pushback in data collection
Even as telematics is set to grow in the coming years, insurance companies may need to step lightly. Consumers are becoming more aware— and wary—of large corporation data collection. Many consumers now want assurances that their data is protected. Additionally, as people grow savvier, many want the ability to choose exactly the type of data that is collected, how it’s used and want the option to have a company destroy that data instead of keeping it indefinitely. Around 67 percent of U.S. consumers want stricter data privacy protections similar to those currently underway in the E.U. through its privacy rules.
The sensitivity of data collection, which can reveal multiple points about a user’s location and habits, makes it easy fodder for references to 1984 and other dystopian tales. Any business, insurance or not, hoping to incorporate technology with data collection will likely need to do so with as much transparency on its usage policies as possible.