Implementing a telematics strategy is the start of the journey, not the end, as the real prize lies in monetizing the vast treasure trove of data it yields.
In a connected world, data has become the lifeblood of business. It’s the table stakes for growth and the ability to compete. The prize? Vast commercial success. Precision and accuracy of insight in an otherwise imprecise world. The potential to move from commoditized, price-driven players to value creators. For insurers, this centers on smartphone telematics and harnessing the devices, which have taken a central role in seemingly all aspects of consumers’ lives, to tap into deep contextual and behavioral information that could forever change how the industry considers risk.
But is it all too good to be true? Will tapping into vast quantities of new data offer significant potential or does it create a whole new set of challenges that make the business case for moving beyond the traditional yearly purchase to an on-demand, usage-based model simply too hard to reconcile?
Yes, the headache is a very real possibility, but…
Smartphone telematics offers a volume, variety, and velocity of data almost alien to an industry that’s relied on basic demographic and socio-economic profiling since its inception. The technology has the potential to catapult insurers from simply knowing who their drivers are and what they drive, to understanding in minute detail how they drive, where, when and, with some interpretation, why. But making sense of all of this requires new capabilities and new ways of working that simply haven’t formed part of an insurer’s arsenal in the past.
The technological, analytical and data science skills required to understand and harness this data, knowing what to pay attention to or not, need building and nurturing. Not to mention the privacy, compliance and cybersecurity considerations that come with holding sensitive customer information.
All this requires leadership commitment and investment, for the long haul. Without it, insurers won’t be able to act, rendering the data, and cost of acquiring it, worthless. Anyone who dismisses the implications of this new data, in favor of focusing solely on the opportunity is optimistic at best or misguided at worst. But the rewards for those who take change seriously and invest in creating the capabilities can be significant, and the headache can be avoided.
Three pillars of monetization
Building a business case for both the technological and organizational investment in smartphone telematics hinges on three pillars. And it’s their combination that delivers a compelling commercial narrative, rather than anyone in isolation.
1. loss prevention
Usage-based insurance isn’t simply a means to more accurate pricing, it holds the key to behavioral change. Understanding the realities of how individuals actually behave behind the wheel enables insurers to target higher-risk drivers and, using combinations of education and incentivization, help them to reduce risky driving. And with reduced risk, comes a reduction in loss. Harnessing the data from smartphone telematics to redefine segmentation can yield significant rewards. After all, what business doesn’t want to know its customers better and better than its competitors?
2. New communication channel
The omnipresence of a smartphone and the permission is given by a driver adopting telematics-augmented policy gives insurers the opportunity to engage in real-time, low-cost and contextual digital communications with a customer that’s actively using, and deriving value from, their app. Reliance on mass-communication channels can be replaced with highly personalized, highly relevant messages to a receptive audience, driving significant efficiency in marketing spend.
3. Improved retention
The relationship between a motor insurer and a driver has never truly been one of love or affection. In reality, motor insurance is a grudge purchase for many and especially painful for certain segments such as the young or those in higher-risk occupations or geographies. But by pivoting to a personal dialogue centered on the insurer providing value, the annual “shop around for a deal” can be challenged by a more meaningful relationship that goes beyond the yearly invoice. If your motor insurer has had 12 months to understand you as a person, to respond by offering incentives and benefits to your relationship based on who you are, not just who you might be, your propensity to place value on this relationship beyond price alone can be increased.
It all begins with the customer
The data trails which emerge from smartphone telematics have almost limitless potential, but they can be daunting, to say the least. What do you collect and why? How do you combine different types of information to build an accurate picture of your customers’ lives? What do you go looking for and what do you ignore? How do you determine your response and how do you do this at scale?
The answer, at the risk of belittling its complexity, is that it all begins with the customer. It begins with the question, who are we really targeting? Who do we want as our customers and what do we think we know about them? What are our hypotheses and what can our data tell us to validate or challenge these?
The answers don’t lie in complex databases or myriad presentations. They lie in walking in the shoes of your customers, truly seeking to understand what’s important in their lives, and what sort of driver they actually are and why. And that’s not just the job of the marketing or digital teams. From risk to underwriting to operations, team leaders can only benefit by breaking out of legacy profiles and assumptions, and getting back to the person that matters most: the customer. Only then can the power of smartphone telematics, and the data treasure trove it offers, be realized.
Find more valuable insights on how motor insurers must adapt to meet customer expectations in Raconteur’s special report, “Tech Revolution in Auto“, published in association with Amodo.