DAILY NEWS Jan 25, 2013 11:23 AM - 1 comment

Telematics could change how personal insurance is sold: Cooke

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By: Angela Stelmakowich, Editor
2013-01-25

Brokers would be well-advised to be prepared for dealing with the influence of telematics – something that George Cooke suggests will ultimately revolutionize the way personal insurance is sold – or risk being left behind.

Young driver

“The reality is that this is coming. It will change the way we all do business. We can’t stop it, even if we want to, so we better figure out how to get on board that train because it’s leaving very quickly,” Cooke, executive vice president of E-L Financial, said during the P&C Crystal Ball event in Toronto on Thursday. 

Simply put, Cooke said telematics is being used for auto insurance in two different ways: data is collected for a number of months, before being scored along with everything else that is currently used to price insurance; or driving performance is measured on a monthly or some other regular basis with premium adjusted in line with how the person has driven in the most recent period.

“If you ignore it, I think brokers will lose very badly. If you pay attention to it, I think brokers would likely win, very quickly, very well,” Cooke said of the influence of telematics. That makes it important for brokers to prepare now, not three or four years from now, “because at that point in time, in my view, the world will have defined itself more or less for itself, rather than us having an opportunity to take part,” he added.

There are some barriers to implementing telematics, including different regulatory requirements in different provinces around pricing insurance. For example, Ontario may not be able to do right now what at least one company, Industrial Alliance, Insurance and Financial Services Inc., is doing in Quebec.

The company’s Mobiliz auto insurance policy encourages young people to adopt more responsible driving behaviour through the use of rewards. Industrial Alliance noted in a statement last fall that driving behaviour has reportedly improved for 52% of the young drivers who are currently taking part in the new auto insurance policy, even if they only recently got insurance through Mobiliz.

Based on the pay-as-you-drive model, Mobiliz uses telematics technology to monitor distance travelled, speeding, forced acceleration and hard braking. Beyond the initial improvement in participants’ driving behaviour, “it should be emphasized that the majority of them keep pace and keep improving steadily,” Michel Laurin, president and CEO of operations for Industrial Alliance, Auto and Home Insurance Inc., says in the statement.

Although some jurisdictions will need to clear hurdles with regard to telematics and auto insurance, Cooke appeared confident those barriers would ultimately be overcome. “The reality is these things are going to happen around us. There will be immense pressure to remove the barriers to allowing us to implement this kind of approach and rate it,” Cooke said.

The change will bring with it “serious implications for the people on the distribution side,” he suggested. “People will be doing business with you not over the counter, but on the phone or through various forms of social media. We’ll be promoting and advertising our product almost solely through social media or something resembling it,” Cooke added.



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Blair Currie

I think Mr. Cooke is correct in advising insurance brokers to embrace telematics as it is really a key way to solidify the relationships they have with policy holders.

I'll refer to the US as a reference point of what brokers should do because insurance telematics is really only in its infancy here north of the border.

1. US Business Models

In the United States the main business models for Pay as you drive (PAYD) or Usage based insurance, are based on the determination of pricing. Driving behaviour is monitored and then measured against peer group norms to set a rate. While this has benefitted the "price players" in the business it is also causing a "race to the bottom" in terms of premium and margins. This race benefits only the price players - Progressive and Geiko - and for those who follow Progressive this will mean lower margins.

These models are also extending the largest problem US insurer face and that's policy holder churn. As a result of decreasing premiums policyholders wait till the end of the year and switch to lower cost providers. To slow down the churn the US insurance industry spent just under $6 billion in advertising in 2012. Putting just 1% of that to CRM would fund a $60million telematics program. And 5% would deliver $300million to a program that could change the entire industry from policyholders being suppliers of capital to the insurance industry to the insurance industry being true service organizations.

2. Customer relationship management (CRM) or price?

The same telematics technology that is used to determine prices is also a relationship builder. If the insurance company shares the data in the form of ongoing scores this can be used as a monthly or weekly point of dialogue with policy holders. By sharing an overall driving score as well as providing coaching and tips to encourage smarter, safer and greener driving behaviour, the business model can change from one of determining a price to building a relationship.

3. Real value to policyholders.

Given that brokers have very few occasions to talk with customers - either at policy renewal time or to deal with a claim, this CRM model can bring welcome news. For what policyholder wouldn't want to have tips on how to keep their teen driver safer behind the wheel - by pointing out how fast they drive, harshly they brake or what time of night they use the family vehicle? Or who would want tips to get 10% more fuel efficiency from their vehicle - by pointing out that their harsh acceleration costs them $50 per month or $600 per year.

4. Solidify your relationships with your drivers and policyholders.

We think that telematics is a great way to solidify relationships and our company can help as we offer a Chronicle that can be branded by the broker to have ongoing communications with his/her drivers.

If you have a CRM program in place there's no reason why your drivers would want to switch. You can match the competitors price but they can't match you concern about their families' lives, limbs and property.

Blair Currie
VP Marketing
Intelligent Mechatronic Systems (www.intellimec.com)
bcurrie@intellimec.com

Posted February 20, 2013 08:57 AM


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