The insurance industry has been undergoing change in recent years and one IT trend that has been gaining traction is the use of telematics. In fact, research indicates that by 2030, the global insurance telematics market is likely to reach $13.78 billion with an impressive 19.5% CAGR growth from 2021.
Given the customers’ demand for personalization and policy pricing tailored to their unique circumstances, it’s no surprise that companies are after insurance software that can help achieve that.
So, today, we’ll dive into the subject of telematics, explore what the term means, discuss the top use cases of the technology in insurance, and look over the benefits it can offer. That way, you’ll be able to determine whether it’s something your business should leverage.
“Telematic devices help in improving premium pricing, enhancing customer perception of a company, and strengthening long-term relationships through closer communication.”
What is Telematics in Insurance?
Although the term isn’t necessarily new, it’s important for us to be on the same page about its meaning. So, let’s first answer the crucial question, what is it?
In essence, it refers to the use of smart devices to transfer, store, and obtain information about remote, insured objects over a secure network. Thus, allowing to better determine the degree of risk associated with each customer, provide usage-based insurance coverage, and even gain insight into what may have caused a claim event.
Most often, telematics solutions are used in car insurance, but they can also be applicable to other subsectors of the industry. Overall, these tools allow insurers to provide highly-personalized policy offers that are based on a clients’ actions as well as determine who might be at fault when an accident or other claim-related occurrence takes place.
Benefits of Telematics
Before we discuss how this technology works and its top uses in insurance, let’s go over the main benefits you might observe after implementing it into your business.
Improved Risk Management
Insurers constantly rely on a thorough analysis of data to determine the risk of offering insurance coverage to a potential customer. The more accurate the forecast turns out to be, the less financial damage the insurer will experience.
As you can imagine, enhancing this type of analysis with reliable information from connected devices can provide a lot of insight into a policyholder’s risk profile. Thus, improving the underwriting process and reducing risks for the business.
Moreover, with deeper insights into what has taken place before the filing of a claim, insurers can reduce the risk of covering the damages for a fraudulent customer.
Increased Client Base
By supplementing your existing insurance offerings with telematics, you can begin delivering more customized coverage. Thus, attracting new customer segments that may be seeking to have more control over their premium pricing.
So, as you tailor the services you provide, more and more customers might flock to you and allow for the steady growth of a loyal client base.
Better Customer Service
According to PwC, tailored services are the pinnacle of what customers are seeking.
“The COVID-19 pandemic significantly accelerated the need to provide consumers with products and services that are relevant to them, customized for their specific needs and habits, and delivered in the way that best suits their lives.”
Lack of flexibility and personalization can irritate clients and cause them to turn to your competitors. This can be avoided by implementing insurance telematics solutions that allow for the customization of offers. By doing so, you’ll naturally cater to the desires of consumers and boost the quality of provided services.
Additionally, by speeding up claims processing, insurers can deliver a better experience to clients whose claims are honest and valid. Thus, leaving a positive impression and keeping them loyal to your organization.
Insurance Telematics Use Cases
Now that we’ve established the advantages of telematics in insurance, it’s time to zero in on the particular use cases of this technology.
Auto Insurance Telematics
As previously mentioned, telematics are most commonly used in the car insurance sector. Specifically, the innovation helps personalize policy pricing for customers based on their driving-related behavior.
So, how does telematics car insurance work? Typically, telematics rely on GPS technology and other connected devices to monitor information that might be of value to insurance underwriters. For example, daily driving mileage, destinations visited, frequent hard braking, and other details that can speak to the riskiness of a particular client.
Once the data is collected, it is transferred to the insurance company for analysis so that the appropriate premium price can be determined for a customer.
Overall, there are two types of uses rising in popularity — usage-based car insurance and pay-as-you-drive insurance. Both are sometimes used interchangeably, yet there are slight differences between them.
Usage-Based Car Insurance
This is an approach that’ll allow your company to assign a policy price according to a person’s driving behavior. In usage-based car insurance, telematics data from cellular, GPS, and other devices is collected and analyzed to predict the likelihood of future claims.
Specifically, the following factors can be monitored:
- Driving speed
- Hard braking
- Driving distance
- Hard cornering
- Typical time of day for driving
As you can imagine, having access to these unique details expands the company’s understanding of a particular client. By paring the collected data with artificial intelligence technology and machine learning algorithms, you’ll be able to quickly determine the most optimal premium price to assign.
This use became more in demand due to the pandemic. As people were stuck at home and not using their vehicles as often, insurance seemed like an unnecessary additional cost. So, a pay-as-you-drive program became a potential solution.
Pay-as-you-drive insurance implies precisely what the name suggests. The more the customer drives the car — the more he’s got to pay for insurance coverage. Of course, other factors like driving history and past claims also have to be considered when identifying the right policy price in this case.
This auto insurance type can be particularly appealing to those who use their vehicles rarely. So, by adding this to your offer before competitors, you might start attracting a new customer segment and boosting revenue.
Telematics for Supply Chain Insurance
In modern realities, businesses rely extensively on overseas suppliers, cross-continental transportation, and warehousing facilities spread across multiple cities. These elements of the global supply chain play an important role in ensuring the timely and safe delivery of materials and finished products.
Naturally, delays, destructions, and loss can occur. Thus, organizations that deal with the supply chain often purchase specialty insurance policies that can reduce the risk of losing valuable inventory during transportation or storage.
In this context, telematics can also offer help to insurers and business clients alike. Primarily, by using sensors to track information about the driver, the vehicle, and product storage conditions. Moreover, connected devices can detect accidents and alert interested parties so that appropriate action can be taken.
One example is insurers using telematics to assess a transportation company’s risk by looking at whether or not the firm uses data from connected devices for fleet management and to mitigate hazards. This is a similar practice to the above-described use in auto insurance, but simply with a focus on commercial vehicles and organizations.
Another way to add value to supply chain insurance is by monitoring the conditions in which the goods are being transported. After all, even if the products are delivered on schedule, but were stored in inadequate temperatures — they can be unusable and thus result in losses for the manufacturer. So, having reliable data to establish whether the transportation company was at fault or not can be crucial.
Telematics in Home Insurance
Telematics can also be of high interest for those within the home insurance. After all, if you can obtain reliable data about what’s going on within the house you are set to insure, the underwriting process might get a lot easier.
Here, intelligent home appliances are key as they can transmit information about how well the home is maintained by, for example, monitoring the state of electrical equipment. If it is evident that a customer frequently replaces worn-out HVAC systems or keeps the stove in top-notch shape, he might be a good candidate for a lower premium price.
Moreover, besides keeping track of how hazard-free a home might be, the system can also alert homeowners and insurers when it’s time to conduct some kind of maintenance. Thus, naturally reducing the likelihood of insurance events and subsequent filing of claims.
Besides home insurance, it’s also worth mentioning the role of telematics in insuring commercial property against fire, theft, or natural disasters. Manufacturing companies, retailers, and plenty of other organizations that own commercial real estate may want to insure it to reduce risks.
The role of telematics is similar here. The technology can continuously collect data on the state of fire alarm systems, water leak detection tools, and other devices that relate to the safety of the commercial property. Thus, informing insurers of how risky it is to cover a specific estate while simultaneously helping prevent claim events through real-time alerts.
Telematics for Health and Life Insurance
As an insurer, you’re interested in identifying customers that are the most likely to obtain costly medical services and make use of your insurance coverage. That is precisely what dictates a policy price your underwriters will assign to each specific individual.
With telematics-based health and life insurance a lot of guesswork can be eliminated. By collecting data from wearables, hearables, or even ingestibles you can better understand a person’s activity levels, among other things. As a result, you can better gauge how risky it is for your company to insure him or her.
Barriers for Telematics Implementation
Now you know about the most popular types of telematics insurance, but before you dive into the implementation phase, we ought to discuss some barriers you may face.
Telematics in and of itself mainly helps obtain and store information about remote objects. The telematics tool that is installed somewhere doesn’t analyze the collected data. As such, you need to make sure that telematics implementation goes hand in hand with software for thorough data analysis.
Large amounts of data need to be gathered and analyzed quickly. That’s the only way to truly reap the rewards of telematics. So, don’t look at telematics as a “cure-all”. Rather, remember to also acquire intelligent BI tools and data science solutions that can take the data you’ve collected and transform it into valuable insights.
Privacy and Security
As you gather more and more data, the risk of cyberattacks and data leaks grows. Your organization becomes a potential target for hackers. Thus, it’s important to ensure there are strict and thorough data privacy policies and security measures in place before you begin offering telematics-based coverage.
After all, if you can’t guarantee a high level of personal data safety to your customers, it’s unlikely that they’ll choose to share information with you. Even if it might reduce the pricing of their policy.
Add Telematics to Your Insurance Offer
Telematics is most popular within the auto insurance sector, but that doesn’t mean that there isn’t ample potential for this technology within other areas too. So, regardless of the insurance space you operate in, these intelligent solutions might be the right next step in your company’s growth.
At Velvetech, we understand that it can be challenging to figure out which IT project to pursue next and to find the right specialists for its execution. That is why we’ve assembled a wide range of insurance software development services that can help on your technological implementation journey.
So, don’t hesitate to reach out to our team and schedule a consultation. We are always eager to discuss a potential collaboration and will get back to your query as soon as possible.