For fleet owners and managers, the cost vs savings benefits of telematics hardware are clear and more importantly immediate. Installing tracking hardware into your vehicles gives you the instant ability to see which ones are best suited to go to certain jobs, cutting back on fuel costs, vehicle wear and driver fatigue. It also means that over time you can fine tune which vehicles are actually necessary – maybe you can cut back your lease payments too. However for insurers, the economics are very different, since the savings aren’t immediate and in-fact income can be reduced if they begin offering reduced premiums for those that install the hardware, so how do they break even?
At the Casualty Actuarial Society’s recent Ratemaking and Product Management Seminar, key speakers talked about making telematics a profitable venture. Any companies wanting to get in on it though, needs to expect up-front costs. The way most insurers handle teelematics at the moment, is handing out small wireless pen drives to customers that show an interest. These hook up to the person’s vehicle diagnostic port and transmit information to the insurer about their location, driving habits and distance they’ve travelled, as well as car vital statistics.
However the problem arises when you realise that each of those dongles being dished out, costs upwards of $100 (£60) and the monthly wireless service – also paid for by the insurer – costs another few pounds, so over the first year of install, the telematics system will cost an insurer over £100. That dongle may only last three years before needing to be replaced and on top of that, the insurer probably offered discounts to customers taking on the hardware so premium revenue is down.
So again, how do they make it profitable?
According to key speakers at the event, the amount of claims needs to drop by around 22 per cent for major insurers to break even. That’s a big margin, even if you do take into consideration cost savings from a reduction in insurance fraud (though at this stage, those perpetrating the fraud are unlikely to volunteer for the hardware).
One alternative suggested was to track a driver for six months, which gives them a chance to improve their driving based on stats collected (or for their premium to be priced more accurately) at which point the dongle is transferred to another driver, cutting back on hardware costs. At this level, the experts believe claims would only need to be reduced by 13 per cent for companies to break even.
The key speakers also warned insurers that they would need to update their customer service system whatever method they used. Questions were likely to come through to the tune of, “how do I install this?” and “do you share my information with anyone?” These questions could very well impact a customers interest in telematics and are therefore it’s important that they’re answered promptly and in a way that’s pleasing and easily understandable by the consumer.
That equals more investment, but it’ll be worth it in the long run according to the experts, who believe that telematics in vehicles could lead to much safer roads before long, meaning that the ever rising insurance premiums could be stalled or even reversed, bringing more people back to the roads and reducing the number of claims overall.
[Thanks Insurance Journal]