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“The genie is out of the bottle. The vehicle insurance industry as a whole is not likely to go back to relying only on its traditional methods of assessing auto risks.” But will Australian insurers be left behind by a fast moving new market entry?

“The genie is out of the bottle. The vehicle insurance industry as a whole is not likely to go back to relying only on its traditional methods of assessing auto risks.” But will Australian insurers be left behind by a fast moving new market entry?

A detailed research paper published in 2014 “Overcoming speed bumps on the road to telematics” by Deloitte’s by Sam Friedman and Michelle Canaan indicated that the “early adopters of User Based Insurance (UBI) are gaining a wealth of first-hand experience and insights that stand to provide a long-lasting competitive edge against insurers who remain undecided or unable or unwilling to do so.”

Whether that data is happening locally in Australia or overseas, it’s still highly likely it will provide understanding of our risks and how they can be mitigated. This is supported by real data, rather than assumption and macro assessments as we do today. Masses of data is being collected in both Europe and the USA. This is enabling more refined models using Kaizen like principles to improve their business continually, or as it would be expressed in the more common expression under Six Sigma these days:

  • “Map it” - what are we doing,
  • “Measure It” - telematic data collection, then
  • “Manage It” better – i.e. better actuarial assessment.

“For example, current rating methods would likely rate two drivers identically if they had the same credit scores, automobiles, and demographics and lived in areas with similar geographic profiles. However, what if we knew through telematics observation, that one of the insured persons drives his/her car one-tenth as much as the other, or at less risky times of the day? In that case, an insurer would be in a position to potentially leverage this new experiential information and underwrite the respective risks posed by the two drivers differently, as well as price their coverage more accurately.”

Progressive Insurance goes part way in the USA by tracking distance for a while then getting the telematic device back but often they have the problem, they don’t know if it’s in the car being insured or the driver for that matter (not all cars send the VIN). So it’s more of a gimmick thinking that what happened this year will happen forever, albeit that some data is better than none. Many others have gone down the driver behaviour line.

The first adopters in our market will have a significant advantage getting what local knowledge may prevail, adding that to the oversea experience and not being caught in the “what device” speed trap that has happened in the USA initially. The technology is well known and used over may years in Fleet Management. So not overthinking the technology and focusing on business needs and outcomes we believe will be vital to a successful implementation in Australia.

This article is an interesting read for our local market which exists within a world where lack of vehicle data, discounts to grab market share (rather than well-defined risk) and an apparent race to the bottom are the norm, damaging market profitability.

This can be replaced now with detailed data driven actuarial processes, broader avenues for customer communication and alternate revenue streams to rebalance that profit equation.

To have a detailed read of this interesting article follow this link:

http://www2.deloitte.com/content/dam/Deloitte/tw/Documents/process-and-operations/tw_operation01.pdf

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