Data collected from automobiles can tell as much about the drivers as it does on how fast they corner turns.

By Robert Regis Hyle

In its brief existence, telematics has been described as the next great tool for underwriting personal auto policies, but in his report for Celent (Innovation in Focus: The Great Telematics Experiment), senior analyst Craig Beattie maintains the technology tool goes beyond the basics of measuring a car’s speed, acceleration, cornering, and braking.

“There are groups of people who fervently believe telematics is the future, but you speak to others in the industry, equally qualified and some very familiar with the technology, and they say people don’t want to share their data,” says Beattie. “It’s almost a religious debate with people in one camp or the other.”

But Beattie looks past the debate and believes products such as General Motors’ OnStar will advance beyond underwriting. One place telematics is proving its worth is when parents buy vehicles for their children.

“The selling point (for some families) isn’t the cost of insurance, it’s about the car being upside down in a ditch and the telematics company having the ability to call an ambulance and sort things out,” he says. “It’s the safety angle: Big Brother looking out for you.”

Beattie pointed out that a motor club in the UK, which also offers personal auto policies, has discussed putting a telematics device in the car, but their core business, like AAA in the U.S., is vehicle rescue.

“They have plans where you put a device in the car, it tracks where you are, and if the car breaks down they can come to you more easily,” says Beattie. “The device will also inform you before the car breaks down that it is likely to break down. Rather than having the inconvenience (of being stranded on the side of the road), they can tell you your car needs repairs.”

Another proposition being studied involves newer vehicles that offer drowsiness alert when the car begins to drift and other driver attention detection systems.

“Those systems look at your location and can tell you there is a Starbucks down the road and if you stop there (the insurer) will give you a coupon for 50 cents off your coffee,” says Beattie.

The real value of the device long term involves understanding where the customer is, what they are looking for, what they might need, and giving them relevant options, according to Beattie.

“You are capturing the information and offering value-added services, including insurance,” he says. “[Customers] are not trading privacy for cheaper insurance; they are trading it for what you see on Twitter and Facebook—convenience, being connected to your friends—and if they are interested they come and find it.”

Beattie believes there will come a time over the next five years where auto insurers will have to make a decision: Do they engage with their customer in ways they never did with a classic auto insurance policy and move to a model where you regularly talk to customers about their policy, give them incentives to drive, and be an engaged insurer or is someone else going to do that and you as an insurer get pushed away from that customer.

American insurers are in the early stages of telematics, but Beattie points out that the first step, judging a driver’s behavior, is well underway.

“Progressive with their Snapshot program gives you the device and that establishes a baseline for your driving behavior,” he says. “If your behavior does change or you are involved in an accident, they establish another baseline for how you are driving. The great thing about telematics is people are testing things to try and find out what good driving looks like. State Farm has a program for young drivers to provide coaching for them. Telematics is getting more complex and insurers are working to get people to try different approaches.”

As for collecting the data, Beattie believes telematics is in a transition phase. The three phases of data collection involve after-market devices, which will transition to leveraging mobile devices with Bluetooth for connectivity, and what he calls “the obvious end game” with a connected vehicle.

“A number of new cars are being built with connectivity, but it is going to take some time, which is why there will be a transition stage,” he says.

Beattie believes the insurance markets that have adopted telematics are where personal auto insurance is perceived to be expensive. For instance, in France, telematics has yet to gain traction because drivers don’t view auto insurance as expensive. But in Italy, where there are high fraud rates and a friction between drivers and insurers, Beattie points out telematics is taking off. The Netherlands, he adds, has a different culture and they see insurance as many protecting the few, so telematics is quite popular there.

One of the most price competitive markets in the world at the moment is the UK, points out Beattie, and if you’ve been driving a number of years without any claims or convictions, you can get a policy for a few hundred pounds.

“The reason telematics has taken off [in the UK] is people that drive only on weekends can pay less because they do tens of miles a month,” he says. “The young can’t get access to any kind of insurance policy. They are unproven and they are likely to have a severe accident that is going to cost a lot of money. They are buying a car that costs 400 pounds and being asked to pay 4000 pounds in insurance.”