Articles - Telematics as an underwriting tool


Since 2010, the worldwide development of telematic data technology for commercial and private motor vehicle applications, with particular reference to operational and insurance benefits, has steadily increased. The term covers a collection of technologies incorporating telecommunications, vehicle electronics, networked computers and data storage, all delivering information about vehicle usage.

 By Nick Rogers, partner and head of motor, BLM
 In short, a “black box” for drivers, fleet operators, companies, manufacturers and insurers that will track vehicle location, movement, speed and general performance, such that driver behaviour can be monitored, measured and influenced.
 Unlike a tachograph record, these devices not only record but also actively transmit data to management reporting tools supplied by providers for bespoke business applications. Engine management systems also often contain stored data accessible by telematics devices; fuel consumption and “greener” driving data being an area of particular attention for fleet operators.
  
 The insurance industry is particularly interested in the application of telematics to driver behaviour and the availability of data for, firstly, analysis of risk by underwriters assessing premiums and, secondly, analysis of accident related data when resolving claims.
  
 A number of issues initially suppressed general uptake – the devices are not universally fitted by vehicle manufacturers, different devices are used, the cost of retro fitting has to be met, public perceptions of “Big Brother” were a concern, as was the use of the data in different contexts and questions of data storage and data protection. These days, “usage-based” insurance, supported by telematically obtained data, is an established concept in motor insurance for commercial and personal risks, the latter particularly for young driver insurance where “pay as you go” costs can be adjusted to match driving behaviour. For underwriters, this provides considerable flexibility and control when setting premiums for a high risk category of drivers, and those drivers can access their own driving record, via an app or on-line, with incentives to improve their behaviour and earn reduced premiums.
  
 Questions of ownership and use of the core data still arise. Such information is personal to the individual driver and insurance companies must not breach the Data Protection Act. Direct application of the personal data to the individual is a function of the contractual relationship in telematic-based policies, but any other use requires care. Use of anonymised derivative data within a specific insurer is likely, but disclosure of derivative data to third parties would cause concern and might breach the DPA. On a personal level, an individual switching insurance companies might or might not want to transfer their driving record to a new insurer, if it can be accessed, raising interesting questions as to disclosure obligations. A key element therefore is the amount of data that is collected. The devices themselves usually collect limited data, overwriting earlier data, but if the data itself is being fed back in real time to a remotely-based reporting tool then clearly a quantity of historic data will always be available and require safeguarding.
  
 Access to telematic information is of keen interest to insurers and lawyers responding to accident claims and suspected fraudulent claims. The “black box” data will, of course, be contemporaneous with the accident and its immediately preceding moments. As such, it should assist in determining liability by means of expert interpretation of the recorded location, speed and vehicle movements.
  
 The legal costs associated with many contested cases could be avoided by early disclosure of telematic data, and further operational savings in time and expense would be made as well. The Courts are wary, however, some permitting such evidence and others not, but where it has been allowed, telematic data has proved influential and it is likely just a matter of time before it is regularly put in evidence, provided it is available and relevant to the issues.
  
 Globally, the development of driverless vehicles, which this month began testing on the UK’s roads, will further encourage use of telematic technology in vehicles of all classes and promote wider public acceptance. Insurers, their underwriters and analysts can look forward to an ever-increasing amount of data on specific driver behaviour and with it the ability to tailor insurance products to target markets.
  
 More “mainstream” classes of driver will reasonably argue for further premium reductions as well, based not only on their own driving records but on the reduction of the burden of collective risk that all drivers share to cover the losses caused by the few. As we become more accepting of the mass collection of personal data by technology companies, the use of telematic data by motor insurers offers a glimpse of the potential impact for individual motorists of detailed third party knowledge of their driving (and other) habits. An unblemished driving record could become a thing of the past, all sins and near misses electronically revealed, which begs the question: so, how good a driver are you?

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