Technology-enabled programs could save auto insurers $20 billion in annual claims payouts, or 17 percent of personal lines auto insurance losses each year, while making driving safer, according to Diamond Management & Technology Consultants, Inc. (NASDAQ:DTPI). Furthermore, almost eight of 10 U.S. households are open to some kind of risk monitoring/reduction device that would collect information about their driving habits, new Diamond research reveals.
Vehicle telematics, using sensing, processing, and wireless technology, would deliver savings by reducing accidents, lowering legal costs, improving efficiency of claims processing, and decreasing fraud and theft. From the wealth of information it generates, the technology also could allow insurers to set more accurate insurance premiums and create fresh revenue opportunities from new monitoring and risk prevention services.
Despite this promise, automotive insurance companies so far are focusing only on telematics technology to promote safer teen driving instead of leveraging it to help all drivers–which would produce bigger benefits for insurers, notes Paul Blase, co-managing partner of Diamond’s insurance industry practice.
“Telematics is the future. Vehicles are talking, and it’s time for insurance companies to take a bigger part in the conversation,” says Blase.
Recent Diamond research of 1,540 U.S. households offers new insights into how receptive drivers are to some kind of risk monitoring/reduction device in their vehicles. Seventy-seven percent were willing to have a risk monitoring device that would collect real-time information about their speed, location, and other driving habits. Respondents did not appear particularly concerned about who would handle that vehicle information: their insurer, a third party or even themselves. When offered a choice between two options, 48% preferred a device that would send information about their driving to their insurer, with up to a 10% discount for good driving, while 26% preferred a device that would reduce the chance of an accident but would offer no discount.
For insurers, the biggest emerging opportunity may be found in the growing presence of in-vehicle event data recorders (EDRs). Many cars and trucks already have EDRs, and the federal government has mandated them for all new cars by 2011. EDRs are similar to the ones found on airplanes; they record what happens just before, during, and after an accident.
In a new report, “Cars and Trucks Are Talking: Why Insurers Should Listen,” Diamond quantifies the potential gains from EDRs, global positioning systems, and other emerging telematics, including:
Approximately 33 percent of bodily injury claims from auto accidents include some type of fraud or padding. Telematics data would identify cases that have a high probability of claims deception.
Telematics can increase the recovery of stolen vehicles from 62% to 80%.
The average auto claim payout is three times higher when a lawyer gets involved–$10,600 vs. $3,200 for claims without a lawyer. By generating more objective accident reports, fewer lawyers would be needed to assess fault.
A complete copy of Diamond’s report is available by sending an e-mail request to: [email protected]
“Given the amount of telematics information and technologies already available, insurance companies at a minimum should be exploring the current formats, granularity, and quality of data to determine how to begin integrating telematics into their information structures,” says Blase. “Now is the time to start thinking about creating new services, improving pricing models, and reducing costs.”
Taking advantage of telematics will require insurers to evaluate and likely modify their information technology systems and storage. For one, they will need to establish ways to extract, transform, and load telematics data into their current data environments.
In addition, regulatory requirements will place new demands on data management and quality. Insurance companies will be required to secure the technology and processes that store, transmit, and use consumer information.
“It is absolutely essential that insurance companies convince regulators and consumers that they are not mishandling their data in order for telematics to deliver the full promise of safer driving for consumers and better pricing and new market opportunities for insurers,” says Blase.
“The insurance industry should take a leading role, working with automakers, legislators, and others, to establish rules that govern how data can and cannot be used in specific situations. It also needs to adopt privacy management systems that prevent and protect against the threat of consumer information falling into the wrong hands,” Blase adds.
Over time, telematics technologies could fundamentally refocus the insurance industry, Blase says. Instead of offering products that help policyholders recover after accidents, innovative insurers could use telematics information to become experts at risk prevention, providing services that monitor and substantially reduce the probability and severity of accidents and other risks before they happen.
Diamond (NASDAQ:DTPI) is a management and technology consulting firm. Recognizing that information and technology shape market dynamics, Diamond’s small teams of experts work across functional and organizational boundaries to develop new strategies, improve operations, and deliver results. Since the greatest value in a strategy, and its highest risk, resides in its implementation, Diamond also provides proven execution capabilities. We deliver three critical elements to every project: fact-based objectivity, spirited collaboration, and sustainable results. To learn more visit www.diamondconsultants.com.