By Dr Gilbert Cassar, Data Scientist at Audatex
As with every other IoT/connected device, cars are increasingly capable of collecting, storing and communicating data – not just about driver habits, but around maintenance and optimal performance. Vehicles know at what speed we drive, where we drive to, how often we go to each place and, thanks to our desire to sync our phones with our cars, our contact lists and music playlists.
This new compendium of data is set to shift the way insurers price risk to create premiums and repair costs. For example, will insurers be able to justify a high price when GPS allows the driver to prove that the car only leaves the garage once a week? Are drivers who travel on the same commute every day safer, or prone to increased risk through complacency?
It’s not just insurers who are asking these questions; as consumers become more aware of the benefits of data sharing, the industry will have to overcome various challenges, such as:
• Insurers keeping pace with the consumer. Drivers will request lower premiums in return for providing behavioural data. This will allow insurers to accurately assess the cost of the risk, but business models will need to adapt at a vastly increased rate to keep up with the speed of consumer demands.
• Customers requiring greater flexibility from insurers through the need for short-term insurance, while still utilising past personal data to ensure they are rewarded for sensible driving. A fully-integrated approach must be adopted by insurers to provide consumers with competitive premiums for temporary cover.
• Gathering any sort of data comes with its own ethical challenges. Insurers are asking themselves how they will justify collecting, storing and analysing all of this data. It is therefore crucial for the industry to clearly communicate what will be collected, how it will be used and who owns the information, especially with the soon-to-be-enforced GDPR having a profound effect.
• Competition from established and new telecoms businesses, as data becomes the new oil for the insurance industry. These companies may be quicker to introduce devices that capture a vehicle’s data. Insurers need to adapt so that they are not left behind when it comes to new revenue streams.
So, what should insurers be thinking about in order to fully embrace this new wealth of data, and the benefits it can bring?
With data being so important to the future of the industry, insurers should first be thinking about their physical and digital infrastructure, bringing it up to a level where it can comfortably, consume, store and analyse data. They will need to equip themselves with scalable data warehouses and Artificial Intelligence environments, either by building them themselves or by partnering with a provider. The analysis of this data will also require skilled individuals, whether this is developed in-house or outsourced, while machine learning and predictive platforms will be a must.
The first insurer to move to in-house, advanced data analytics, bring in flexible models and invest in in-house skills will have a clear competitive advantage.
UK customers are not usually loyal to certain insurance providers, constantly looking to switch if a cheaper option is available. A more flexible model that allows customers to demonstrate their safe driver credentials and only take insurance when they need it with cheaper premiums will prove successful.
Insurers must also look at partnering with manufacturers for building products to be installed in the vehicle, such as maintenance-related sensors that notifies the driver or company when a service, or maintenance is due.
Insurers already have a lot of historic claims data at their disposal; with this properly stored, categorised and digitalised, insurers could use it to develop new products and services.
Finally, insurers could make the most of this opportunity to build new relationships with customers, moving away from the limited interactions previously held with customers that were often difficult – such as around contract negotiations and processing claims. With the proliferation of devices plugged into vehicles, insurers could offer supply and installation for instance, which would increase touch points and the tone of those interactions with consumers full of relevant content rich to increase loyalty and reduce churn.
In an ideal world, insurers would work with each other to share data and insight, allowing them to benchmark their premiums, in a similar way to how consumers receive price comparisons between supermarkets for every shop.
For now, though, they need to work on embracing digitisation across the customer journey and how connected cars can offer unparalleled insight into customer behaviour if insurers find ways to plug themselves into that connected car ecosystem.
Once insurers start making the most of the data they already have at hand, it is only a matter of time before they can take advantage of new data to build a greater picture of driver habits and risk.
With the industry moving at such an incredible pace, it is now crucial for insurers to keep up not catch up, by aiming higher and investing in ways to make their services smarter. While the rise of data sharing will force insurers to innovate quickly, capitalising on it early will allow them to unlock its full potential and set the agenda in an increasingly connected sector.
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