Developments in insurance telematics: Jonathan Hewett of Octo Telematics
Earlier this year, Octo Telematics, a specialist provider of telematics services for insurance companies and car makers, reached a milestone of four million connected users on the roads globally. What’s behind your success and the success of the market generally?
Our focus has been very much on answering the fundamental question that insurers have. Our services align to the foundational components of insurance, which is how to price risk, how to manage and make claims and how to manage the relationship with the end consumer.
So we understand what those questions are, we understand the metrics insurers have for setting risk, what makes a difference to them at the claims level and how in improving their financial results, they can offer better deals to their business customers and consumers.
Are fleets increasingly turning to insurance telematics as well as private individuals?
At a conceptual level that makes a lot sense for people. Can I get a cheaper insurance premium? Can I improve the uptime of my vehicles by adopting this technology? People get that.
The key thing that’s driven the market over the last 12 months and will really start to impact during 2016 and going forwards is the substantial reduction in the cost of the technology. So that’s making it easier for the fleet manager, for the insurer to make the business case in adopting telematics.
How has that reduction come about?
It’s sort of a Moore’s Law thing. Technology always does two things essentially; it gets smaller and it gets cheaper. We spoke to our customers in the fleet space and the insurance space about 18-24 months ago and we said, “You say you’ve got the appetite to use technology to improve your businesses but why isn’t it moving more quickly?” And that thing that came back was the cost.
So we took that challenge, we invested a substantial amount of money in research and development and we’ve now built a common core module for all of the different types of devices that we use, which means that we can manufacture at high volumes, improving accuracy and then use that common technology platform in all the different types of devices that we use. Across that complete suite of devices, we can really bring the cost down.
The other thing we’re really excited about is our first big deal in the motor manufacturer space. The announcement of our deal with GM Onstar, which is also in the fleet arena, means that we don’t need to install a device because the art is in being able to use the data coming from the connected vehicle for the provision of the services that the insurance industry and the fleet manager need.
At the other end of the spectrum we’re also using smartphone technologies for lower risk segments. We launched an app called Octo U back in August, which uses smartphone technology for drivers to be able to qualify themselves and generate a simple driving score. You then use it for an assessment for a premium.
Of course, the smartphone is the device that businesses and for that matter consumers are using to feed back on their driving and to receive the different types of hints and tips that can lead them to get lower insurance premiums.
Are people getting more accepting of the technology?
I think there’s a general acceptance in the population at large, be that amongst business customers or consumers, that sharing data for reward is a fair trade. With our smartphones we’re sharing data about ourselves and the ‘quantified self’ is a global phenomenon now which mass markets are beginning to follow.
I think everybody is of the view that if there is a fairly strong incentive – that could be a price incentive, it could be an extra value incentive and with telematics it can also be about addressing safety. So if the proposition is shouting that if you have an accident, we’ll know exactly where you are and what kind of accident so we can send out support, that’s very powerful as well. Clearly insurance purchasing is dominated by a focus on price, people also buy insurance for peace of mind and knowing that you’ve got that added service with a telematics-based policy is a very powerful motivator for fleets because they’re taking care of their drivers more actively. And for the driver themselves.
What about the campaigns on data privacy?
We’ve been very focused on insurance and fleet. The data we collect is for the express provision of insurance or fleet-related services. What’s really important is the concept of transparency. So the data we share with the insurer or fleet management company is exactly the same data that we share with the driver through their driver portal or smartphone app.
That’s a really important principle; to be very upfront with drivers about what data is being collected and what services it will be used to provision.
Of course if you’re a sensible soul, we see a lot of commercial applications that professional or company car drivers are very keen on. Certainly the crash and claim services that potentially allows them to prove liability, that an accident wasn’t their fault. You get that sentiment from drivers, when you say that the whole thing is transparent. The data you see is the same as the insurance company will receive.
Will there more OEMs expanding this across their products?
What’s really interesting to us in that all of the global OEMs are working on their connected car programmes and they’re wanting to work out how insurance fits into that connected car programme. It is the law and if there is a way of providing a simpler and easier way solution for insurance through the connected car programme then that’s to everyone’s’ advantage.
Different OEMS have different ideas in terms of the technology solutions. Some already have technology embedded in their vehicles, others want our technology to embed in line with the production process.
The big advantage we have really is that OEMs are manufacturers of vehicles, they’re not insurance companies. And we’re able to bring all of the insurance partners that we already integrated with. We have 90 global partners – making those connections is what we do.
Taking a step on then it gets very exciting when you have a world where GM and Ford and VW have their connected vehicles, their autonomous vehicles and so do Google and Apple and we’re really excited about that world because there will always be accidents but then technology understands what’s happened to who and where it’s happened and when – the analogy I draw is with the aviation industry and the black box. There aren’t many air accidents thankfully but when there are it’s absolutely critical to know precisely what’s happened.
And what about driverless cars?
What will be critical in that paradigm will be knowing who was in control of the vehicle at any point in time and that’s where telematics and sensors and data will be vital.
But for many years to come that car parc will be a mix of autonomous, semi-autonomous and traditional vehicles as we have today.
From an insurance market the telematics-based ones perform better that standard policies. We see globally insurers getting up to about a 20% improvement on their loss ratio with telematics. That means that when they’re talking to their fleet customers, if the fleet adopts telematics, then that benefit that the insurer is getting they can reflect back into a cheaper premium for the fleet.
And taking another step on, fleets are now taking the opportunity to say we’re a telematics-enabled fleet, what insurance discounts are you going to provide us with?
Fleets are taking control and qualifying their fleet as a safer driving fleet, likely to have less accidents, likely to have less costly accidents.
Does this partnership between insurers and telematics also open up telematics to smaller fleets as they don’t need to source the technology themselves?
Yes absolutely. I think the insurance industry is now at the point where they have an end-to-end process. They work with telematics service provides like Octo. We provide the devices, we provide the installation and all of the customer support. It becomes very easy to even the smallest of fleets to adopt telematics.
How does Octo Telematics partner with smaller fleets?
We work with the very large fleets like Arval. So when you get into the smaller market, it’s the fleet having the discussion with the insurer and the insurer providing that end-to-end service, working in partnership with Octo.
What about going forwards?
Many commentators are saying that the car is one of the most exciting things connected to the internet. We are a very focused as an organisation. We are the experts in using telematics and connected car data to price risk, to understand if an accident has happened, to understand liability and cost in the event of a claim and to provide that data on that transparent process I explained about to both the insurance company and the driver.
Being really successful at that primary activity is really important. But then there are so many other things that we can do. But we’re master of current our insurance telematics trade. And we see a very big investment market globally and going forwards lots of new market opportunities in places like China and India.
There is such a big benefit for fleets in driving down the cost of ownership, driving down the cost of their insurance, so that we see that playground will play out exceptionally in the next few years.
Are there any difference between the international markets in how they approach telematics?
The biggest difference is between the rest of the world and the US. In the US, fleet telematics is fairly well developed. They’re less sophisticated services than insurance telematics but the insurance market works on the basis of a device that goes in a vehicle for three or six months typically and gives a pattern of driving behaviour from which the insurer can assess the risk and then the vehicle comes out and it’s reused.
That market is now changing to look more like the rest of the world market because insurers in the US are waking up to the idea that you have the device left in the vehicle then you can capture crashes and claims data. And the key change in that market is being driven by the lower cost of the devices so insurers can make the business case of a device in the vehicle now. We’ll get the point where the market is a true global market, the difference being more at a consumable segment level with different technologies being used dependent on the different services being provided or the different risk profile of the customer.
What about the UK? How does it stand out?
The UK from a insurance perspective is a sophisticated market, so we do see that the insurers are very sophisticated in their use of the data and really starting to build their mathematical and actuarial models around the enhanced data that telematics provides because it’s not just based on what somebody said they do but what is actually evidenced by the device. The way they use the data is to reward the good drivers, not to penalise the bad drivers. We see the main insurers in the personal lines and in the commercial space using the breadth of information – and this is what big data is about essentially, having more data makes smart decisions based on smart data, giving key things like how to price the risk, how to manage the claims and how to pay claims.
Will we see fleets that have already sourced telematics direct themselves going through insurers in the future?
I think that will be very much driven by the incentives that the insurers offer. I think insurers see that their portfolios with telematics perform better and so they can use that improvement in other areas and I think they’ll be offering discounts and incentives for telematics-enabled fleets, they’ll promote that as part of their service, they’ll provide that end-to-end service. And I think we’ll see the market grow substantially in the coming years.
Will we see fleet telematics provider move into the insurance space?
It’s quite difficult for fleet telematics providers to move up into the insurance level telematics – the accuracy of data that’s required for actuaries, the accuracy of data that’s required for recognising crashes and the accuracy of data that’s required for forensic claims reconstruction. But there are already some big major players in the telematics space. Octo has 36% market share globally. There are people like Vodafone with their Cobra business, Verizon with its new telematics, all very actively targeting the insurance telematics market.
I think some fleet insurance telematics providers will try to work on their sophistication of their services to move into the insurance telematics space. There are a lot of other data and analytics firms who are looking at the insurance telematics arena because it’s a very large global market and a very attractive market to be operating in.