Driving Forward

The possibilities of telematics look to be almost endless, poised to play a role not only in auto and home insurance, but perhaps even the daily lives of consumers across the country.

Although the telematics experience elsewhere may be deeper than in Canada, offerings from insurances companies, direct writers, broker partners and vendors are expanding here at home, albeit unfolding with a sort of “sameness” as a result of the regulatory restrictions and the persistence of the discount-only model.

Sources suggest that changes on the regulatory front, a loosening of what is currently permitted, will be essential if the promise of telematics and usage-based insurance (UBI) is to be fully realized.

Should that freedom be introduced, however, is the data mature enough and the understanding of what to do with it sufficient to provide a solid foundation for accurately assessing risk and determining price? And will the type of data now being collected provide the insights needed to propel “telematics” beyond discussions of pricing to the next level of reflecting consumer wants, needs and convenience, perhaps even before they voice those preferences?

While not all insurers are currently “in” when it comes to telematics and UBI offerings, some commentators suggest the time is now for capitalizing on the opportunity. What happens to those remaining on the sidelines while early-adopters move on to the next stage? Will inactivity leave some p&c insurance players stuck in neutral?

And are consumers ready to come along for the ride?

REVVING UP

From an insurance carrier perspective, there is a lot of activity on the telematics front, says Blair Currie, vice president of business development for Intelligent Mechatronic Systems Inc. (IMS). Currie says that Canada’s auto insurance industry is moving into a “second phase” with respect to telematics, where early-adopters (largely marked by direct or agent-based distribution systems) are trying new and different things, including various models and experimenting with mobile.

Desjardins General Insurance Group (DGIG) was among the early-adopters. It was the first “to widely offer telematics in Ontario and Quebec. Now we are the first to offer usage-based insurance through a smartphone app,” says Alex Veilleux, the company’s vice president of Ajusto & Innovation.

For those who have not yet released a telematics offering, there is the group of insurers that can be called the “fast followers,” Currie suggests.

“I believe more insurers will enter the arena because they don’t want to be left behind,” comments Colin Wright, principal of Corner Two Consulting.

“I would think almost every major provider will have some sort of telematics option available to consumers in the next year or two,” predicts Andrew Lo, chief marketing and chief strategy officer for Kanetix.ca.

Though some carriers have indicated their intention to enter the telematics arena in the near future, says Michael Brattman, president of the Insurance Brokers Association of Ontario (IBAO), others seem content to watch “on the sidelines as they determine how they will participate in this space.”

Activity is clearly not only unfolding on the insurer and direct fronts. “There are a number of Tier 1 and some Tier 2 brokers who are trying telematics on their own,” Currie points out.

Canadian insurers “have shown that telematics is something that is here to stay,” says Donna Ince, senior vice president of personal insurance for RSA Canada.

The insurer plans to launch telematics in the Canadian marketplace this year, Ince reports. This “is reflective of our commitment to ensuring our brokers have a competitive and compelling product proposition.”

On the consumer front, though, some figures indicate telematics may be a bit of a tougher sell than anticipated.

Lo reports that his company carried out surveys gauging consumer awareness of usage-based insurance (UBI) in 2014 and 2015, and found it to be generally flat. “In 2014, 18% of (polled) Canadians were familiar with (UBI), and in 2015, 19% were familiar with it. However, Quebec is the exception, where awareness actually increased.”

SIMILAR MODELS

Quebec, in fact, represents a bit of an odd (but less restrictive) duck. As it stands, there is a “sameness” today, both with regard to UBI products and discounts, notes Veilleux. “We think this has a lot to do with the regulators.”

Michel Laurin, president and chief operating officer of iA (Industrial Alliance) Auto and Home Insurance, says that he does not expect things to change “as long as the players in the insurance industry continue to replicate one another.”

Wright would agree. “Market conditions and the regulatory environment would have to change in order for there to be more flexibility and greater differences among offers.”

But Lo’s view is that the products will evolve. “In addition to discounts, I would think the products will be developed to include value-added services.”

Despite the current “sameness,” Currie points out that, already, different models are in use: discount and surcharge, discount only, recycle and time-based.

Currie says he sees the iA (Industrial Alliance) model in Quebec as “revolutionary because it takes advantage of both discounts and surcharges, and is based mostly on recent driving behaviour than traditional driving proxies.”

While “differentiation is important, I think there is a need to first get started and get used to telematics, before trying something untested. Telematics itself is a radically different way of doing business for insurers, so it’s important to test and learn and to grow as your confidence with the data grows,” he says.

“At this point, the most significant differentiator appears to be in the use of the data,” Brattman says. The ingenie offering for young drivers in Ontario (being rolled out to brokerages through IBAO, as well as through ingenie.ca) “is the first program with a quarterly adjustment in the policy premium,” he says.

“This is significant when we look at ways to change driving behaviour. Waiting for an annual adjustment at the end of the policy is asking a lot of drivers to wait until the end of the policy period to be rewarded for good driving,” Brattman adds.

Says Currie, “There is an interest in differentiation and the sameness you see at the start of many programs is just to get a proof of concept going, to get familiar managing physical devices versus paper or digital policies, to learn how to deal with the tremendous volumes of data generated and to build models for ratings, customer relationship management and to better employ telematics for claims management and cost reduction.”

The Kanetix survey shows those who were aware of the technology were likely to be younger (under 45), Lo reports. Additionally, men were more likely to be familiar with UBI than women.

A survey of 1,000 consumers in the United States, released last summer by Towers Watson, revealed 79% of those polled “said they either would buy a UBI policy or are willing to consider the concept” if insurers guarantee that premiums would not increase.

“We expect the uptake to increase as more cost-effective solutions become available, competition for the best drivers heats up, and the regulation changes – which it will in time,” Currie says.

“Canadian companies tend to ‘stand on the shoulders of giants’ (to paraphrase Isaac Newton) and launch programs after they have been proven – at home or elsewhere,” he suggests.

Savings will likely figure in how “proven” consumers view a program. “For young drivers insured through (iA’s) Mobiliz, the savings are very material; it can easily add up to more than $1,000 a year,” Laurin notes.

“With our original plug-in device, customers were saving about 12% on average,” Veilleux says of the Ajusto program. Figures from DGIG show that 50% of clients save 10% or more.

The “uptake has been good, on target, and we believe that our simpler offer using the smartphone app will bring even more customers to our UBI program,” Veilleux comments.

The 2014 survey from Kanetix indicates that 30% of respondents said they would need to see savings of $100 to $249 annually on their insurance to switch to a UBI program. A further 26% of those polled reported that they would need savings of $250 to $500 a year.

“Consumers obviously benefit from the upfront discounts,” Currie says. But the real “savings” may be the impact on driving behaviour and performance.

Experience, mostly from the U.S., shows “claims drop anywhere from 15% to 40% depending on the program,” he says. Based on scores and ratings on key driving indicators, “over 90% of young drivers and more than 70% of ‘regular’ drivers think they are above average. Many change their behaviour when they see they are below the 50% mark.”

Veilleux reports an Ajusto participant survey last year showed “a majority of users said they were more conscious of their driving behaviour and about half felt they were now safer drivers.”

An ingenie client, says Brattman, “benefits from an automatic 10% enrollment discount with the ability to receive up to 25% based on good driving behaviour.” Based on experience in the U.K. and the U.S., telematics is expected to “reduce both the incidents and frequency as good driving behaviour is recognized and rewarded on a much more frequent basis than traditional underwriting methods.”

Currie points out that “those insurers we have with young driver programs believe they have saved lives – which is an incredible ROI if you think about it.”

Aviva Canada announced last October it had committed to writing auto insurance using telematics provided by Quindell in partnership with Independent Broker Resources Inc. (IBRI), a subsidiary of IBAO. At the time, IBAO reported that Aviva Canada had selected Quindell on an exclusive basis for five years.

“We firmly believe that telematics and usage-based insurance solutions will benefit our customers as we are able to customize their insurance based on individual driver experience, and reward safe driving behaviour with premiums,” Greg Somerville, chief executive officer of Aviva Canada, said last fall.”This initiative is consistent with our strategy of leveraging advanced data analytics and providing digital solutions that enhance value for our customers.”

Beyond safety, Ince suggests Canadian insurers’ experiences with telematics to date “demonstrates that there is customer acceptance for the proposition and that it can be used as a way to assist in the management of Ontario rate decrease pressures and to continue to drive pricing and underwriting sophistication into auto portfolios.”

FUTURE FEATURES

As more players emerge, what will the impact be? “As more telematics offerings are made available, the potential for niche offerings increases as insurance companies identify their target customers and, thereby, become more focused in their marketing to attract their preferred segments,” Brattman predicts.

Veilleux says he can see telematics being offered for other types of vehicles, such as motorcycles. As well, additional value-added services could emerge.

Lo agrees. “I think more value-added services will be added to telematics as the technology hits the mainstream. Things like discounts at major retailers for being a good driver, features that give the ability for parents to monitor driving and travel of their children, roadside assistance and, even, vehicle diagnostics.”

Currie sees the integration of contextual data sources – such as lighting conditions, road conditions, traffic and weather – giving rise to better analytics, insights and intelligence, leading to the development of surcharges.

“Most of the conversation is around the business side of telematics,” he says. “But consumers have incredible say in the matter. We are building on business to provide connected car solutions that will benefit these consumers.”

STALLING OUT?

The activity and benefits are clear, but what are the consequences for those not yet in the game? Wright contends “an entry now would be more of a defensive move. To achieve competitive advantage would require offering something that would in all likelihood be unprofitable, either through richer discount benefits or because of the substantial marketing spend that would be required, or some combination of the two.”

Others are not so sure.

“The market is still in its infancy,” says Brattman. “There is an underlying belief that the better drivers will self-select themselves for telematics, so, although first-movers are expected to gain the upper hand, there is still plenty of room for innovation in the market. You only need to look south of the border to see the wide variety of telematics products and uses that favour consumers.”

Currie says that industry is seeing better programs that are only now taking advantage of mobile technology, and a number of auto OEM (original equipment manufacturer) plays emerging.

“Those already in will likely try to reduce costs, which may mean the increased use of mobile devices,” says Wright.

Some companies are moving towards apps using mobile phones as the source of the data, says Robin Joshua, director of corporate underwriting and risk management for CAA Insurance Company (Ontario). “Eventually, this will be replaced by in-car technology, which is already being built and has auto manufacturers considering their next steps.”

Brattman suggests “apps are a good identifier to help determine if a customer is a good ‘fit’ for telematics.”

A number of companies already offer apps, including Desjardins and Kanetix. Both apps “have made the technological leap to using smartphones instead of devices that plug into the car,” Lo says.

“I also believe that you will see more insurers develop smartphone apps that monitor driving,” he predicts.

While the maximum 25% discount for Ajusto drivers has not changed with the app, says Veilleux, how the driver is measured has. Desjardins is basing the discounts on the individual driver’s behaviour as opposed to the vehicle, which could have multiple drivers.

Brokerage InsureMy Ltd. recently announced a new time-based insurance product for commercial drivers and fleets in both Alberta and Ontario. It allows commercial vehicle operators to pay their regular premium based on traditional rating criteria, but then receive a refund at the end of the term for vehicle inactivity.

Currie says there are a number of ways that embedded systems are evolving. For example, a number of auto OEMs are interested in selling data generated via the vehicle, the data for which will need to be priced and graded before it can be sold on marketplaces, he says.

“Embedded systems are also resulting in dealer plays where auto dealers use telematics for asset management, generating recurring revenue, to capture repairs and to enhance loyalty over very long purchase cycles,” Currie reports.

“New ways for collecting information will appear, apps will be introduced and more is, for sure, to come in ways we don’t even expect today. We have to stay open to change,” suggests Laurin.

GETTING CONNECTED

“Telematics is really just a subset of connected car solutions. While telematics will grow for personal lines and commercial lines business, it will also push into the life side of insurance (not just with speed ratings) but with health telematics,” Currie predicts.

“With the use of Apple Watch and FitBit, healthier people may receive discounts. However, that is far in the future. The majority of Canadians surveyed still have grave concerns with privacy when using telematics for cars,” Lo cautions.

“It will also touch the property side of insurance because homes or farms with vehicles parked beside them will be safer,” Currie adds.

Laurin suggests that such areas as commercial auto, long-haul trucking, motorcycles and snow vehicles are natur al fits with telematics longer term.

Unica Insurance recently endorsed Fleetadvisor, a commercial auto insurance product announced earlier this year by IBRI. The tool “will provide sophisticated data as a means to refine fleet rates,” said Dave Smiley, vice president of operations at Unica Insurance.

Most importantly for brokers, Smiley noted, the tool “will enable them to solidify client/broker relationships by putting brokers in a position of a true fleet risk management advisor.”

Wright says telematics as a platform has enormous potential to deliver a range of non-insurance services. “I don’t see one service, insurance or anything else, being the ‘killer app’; I believe that the “killer app” will be an array of services that share a common platform and, therefore, the cost of delivery,” he says.

“The really big picture is when all vehicles are connected so that we can have vehicle to vehicle (V2V) communications and infrastructure to vehicle (I2V) communications,” Currie says. “That’s going to be the real, long-term promise of telematics,” he maintains.

“Once enough data has been collected, analytics will allow rates to be developed based on the experience, which would result in rates commensurate with driving habits,” Joshua says. “In the future, telematics will be a true rate for the individual and not a rate for general groups,” he suggests.

Noting that companies are currently focused on different rating variables, eventually, everyone will use similar variables, Joshua believes. “However, the providers will try to differentiate with additional features, be it diagnostics, infotainment or traffic information.”

UBI “is not just a personal auto play – it is something that could be used in other lines of business as well by leveraging what other industries have already been implementing,” Ince comments.

“For example, the concept of the ‘connected home’ is very real in other industries, for home monitoring products offered by telecom companies. Those connections (very similar to ‘sensors’) can very intuitively be leveraged into insurance to help the customer better manage risk (water, theft, occupancy, etc.) and they afford a very similar communication platform akin to what we are seeing on the automobile side.”

REMOVING ROADBLOCKS

Much of this promise, however, may not have a chance to play out – or play out as quickly as possible – absent changes on the regulatory front.

Laurin and Veilleux agree regulators must be more flexible. “At Industrial Alliance, we consider ourselves lucky to operate in the province of Quebec where the regulator lets the market drive itself on the basis of free competition. It has allowed Quebec insurers to become much more creative in developing new products which, in turn, has given them a hedge in becoming more and more influential in the Canadian market as a whole,” Laurin suggests.

“Outside of Quebec, the regulatory regime is a chokepoint that prevents innovation and the realization of the potential that UBI has to offer,” Wright argues. “The regulators need to step aside and stick to fulfilling their mandates of ensuring the financial health and stability of insurers to safeguard the public,” he maintains.

“Let the market decide how the product should be priced and allow both discounting and surcharging. That would make for a more transparent product and a more competitive product, both of which would significantly benefit consumers,” Wright contends.

“In the future, with more mature Canadian data, the regulator will be in a better position to allow for more elaborate offerings, which ensures that consumers are protected and that telematics products are sustainable,” says Brattman.

“Customer customization and fulfilling the wants of the client will go a long way in encouraging consumers to embrace telematics,” Lo suggests, but emphasizes consumer concerns over privacy and how the data could be used will also need to be addressed.

“Customer behaviours and expectations of how they want to do business are rapidly evolving and, as a result, the insurance and broker business landscape is shifting,” comments Ince.

Currie sees telematics becoming “very personal and drivers will, in the near future, have driving scores and be able to shop around their data. BYOD will expand into ‘bring your own data’ and consumers will use their data to select an insurance carrier. This is one of the places where brokers will remain relevant.” Hugh McTavish, president of InsureMy and president of Godfrey Morrow Insurance and Financial Services, said during a recent technology conference that telematics “actually provides more opportunity for me to discuss things” with customers and represents a way for brokers to add value. “There is more data, there are more touch points.”

Telematics, Joshua predicts, “will become the norm. The data being collected individually and collectively will drive how insurance works, how individual policies are rated, product development, vehicle safety and traffic management.”

A report last year from Aite Group LLC would seem to bear that out. Aite predicts UBI, as a business model, and telematics, as a technology enabler, will “act as bridges towards an inevitable future for the insurance industry.”