With only 8%* penetration and 1% yoy growth, telematics-based policies still make up only a small part of GB’s total car insurance market. The main buyers are the ‘easy to sell to’, high risk target group of 17-24 year olds who use telematics to keep their high premiums more manageable.
Cost reduction as incentive doesn’t work for most of the more experienced drivers though: Only 11% of all motor insurance customers aged 25 to 34 years used telematics based policies in 2016, 6% were between 35 and 44, 3% were 45 to 54, 1% was between 55 and 64, and usage among over 65 year olds was only 0.4%.
With technology innovations disrupting consumers’ lives on a daily basis, the insurance industry has only seen the beginnings of data based policies. To brace their business against market developments regarding telematics – including increasing threats from start-up challengers – incumbent insurers should focus on a) increasing penetration among the high risk target groups, and b) monitor shifts in consumer opinion towards tracking.
Start ‘on boarding’ consumers when cost is still a valid argument
For young and/or new drivers, insurance costs average at about 1,400/year**. Telematics-based insurance policies provide these younger drivers with a tangible way to reduce these costs. At the same time, this also presents a great opportunity for insurers.
They have the chance to make early users appreciate the benefits they have experienced, instead of ‘demonising’ the act of tracking, and make them more accepting of telematics as they age. The technology would already be in part of their life, rather than insurers having to convince potential customers at a point when cost savings aren’t a valid value proposition. But this approach can only work if incumbent insurers also offer products for aging telematics users that make staying with a data-based policy a better option compared to switching – for example through a rolling reward system.
Would a simplified customer journey influence consumer opinion towards tracking?
First discussed in 2002, it took 16 years until the legislation to integrate eCall devices in all new cars in the EU had been passed to start 31 March 2018 (pending Brexit negotiations for GB). By now though, most premium brands have eCall already installed as part of their telematics services. And while the technology won’t monitor driving behaviour, it could.
Which is why insurers are discussing potential back-end data usage with manufacturers. At present, insurance telematics devices have to be installed separately. Using existing in-vehicle hardware would remove that step in the customer journey, and integrate telematics seamlessly. It will be an interesting question to ask if having hardware already installed in the car, would influence consumer bias towards data-based policies.
It’s not time yet for mass-market adaptation of telematics-based policies
Right now, low risk consumers (most drivers over 25) who haven’t used data-driven policies before are sceptical about being monitored. And it doesn’t help that data-driven policies don’t have a strong enough benefit to justify giving up a small part of their privacy. During the time it takes technology to become mass-market ready, insurers need to develop alternative value propositions for these low risk consumers – whether that’s safety, security and/or convenience benefits.
And they need to monitor changes in consumer attitude towards data-usage and tracking to have a competitive edge, and be ready to act, when telematics will have become a normal part of a car driver’s user experience. In the meantime, they shouldn’t miss the train on getting as many young consumers on board as possible.
*‘GfK Financial Research Survey’; Period: Jan-Dec 2015/2016