Transitioning to Fleet

Personal lines auto has garnered most of the attention around telematics and usage-based insurance (UBI) in recent years. However, the application of data analytics to commercial fleets represents an arguably better insurance fit when it comes to rating transparency, safety performance and loss management.

The use of telematics for large vehicle fleets and long-haul trucking firms is hardly a new subject. In fact, companies with significant fleet sizes have had various forms of telematics systems in place for decades to track vehicle location, delivery times, fuel costs and driver safety.

However, scalable insurance solutions for commercial auto have been lacking in the Canadian market – until recent months.

Two broker-based announcements in January revealed new developments in telematics for fleet managers. On January 13, Calgary-based InsureMy Ltd. introduced the first time-based insurance product for commercial drivers in Alberta and Ontario. Using telematics technology offered by Intelligent Mechatronics Systems (IMS), the brokerage allows operators to receive a premium refund based on use/vehicle inactivity, while providing the convenience of full-term coverage.

“Telematics has been around in this (large fleet) space for a long time, but really nobody has been talking about [it] in terms of insurance on the commercial side,” says InsureMy president Hugh McTavish. “It is only in the last eight months or so that we have had that discussion with our markets,” McTavish reports.

“We are out prospecting heavily, getting a lot of interest from clients,” he says, adding that one underwriter is “on board and another one close.”

On January 19, Independent Broker Resources Inc. (IBRI), an independent arm of the Insurance Brokers Association of Ontario (IBAO), launched a customizable telematics program that is called Fleetadvisor. Already tested out with taxi fleets, it is designed to help fleet managers reduce operational risks and costs, as well as improve vehicle maintenance.

“Fleetadvisor has received a positive response from both brokers and insurers in the Ontario marketplace,” comments Kevin Warren, IBRI’s director of operations. “Since our launch, 20% of our members have been trained on the product and conversations are moving positively with insurers who want to incorporate the Fleetadvisor offering into their commercial strategy,” Warren says.

Recently, Unica Insurance Inc. endorsed Fleetadvisor, opting to offer a 5% premium discount to fleet managers that provide access to drivers’ data.

MARKET APPETITE

Brokers are seen as an ideal intermediary for commercial clients who shop regularly for fleet coverage. Several recent studies on telematics and UBI point to a significant potential market appetite for commercial auto.

In August 2014, LexisNexis published the results of a study on telematics that included findings on fleet insurance. “Two-thirds of small fleet managers shop for insurance every two years or more,” says Ernie Feirer, vice president and general manager, commercial insurance at LexisNexis.

“These fleet managers are looking for ways to save money and our study shows 27% of them would sign up for a UBI program. This leaves a lot of room for growth and a huge opportunity for carriers offering UBI,” Feirer reports.

IMS published a white paper in 2014, Commercial Lines UBI: Insurance Telematics Opens New Opportunities, in which the tech firm observes “adoption of telematics by commercial fleets is expected to reach par with long-haul trucking telematics by the end of 2014 and dominate commercial fleets by the end of 2019, according to new research from ABI Research.”

IMS also notes “telematics technologies and services, which were first adopted by the long-haul trucking industry, should reach 50 million vehicles in the coming five years.”

Potential to lower premiums

The rationale for commercial auto and fleet telematics is, at least initially, the lure of lower premiums. A case in point is InsureMy’s time-based product.

“If the vehicles are sitting idle for periods of time, why is the customer paying for the coverage that sits on those vehicles?” asks Gord Mansfield, InsureMy’s director of national sales. “It is a simple and transparent way to bring something back to the customer and yet still make sure there is proper protection.”

This also helps with underwriting and rating clarity, Mansfield suggests. “I think when you start to apply some of the data we collect through telematics, it allows more price transparency,” he says. “You get a clearer idea of what the risk and exposure is up against the kinds of coverage the customer truly requires and what that means from a rating standpoint – that is really the connection the broker wants to bring to the process,” he observes.

Warren explains increased visibility and the ability to give fleet managers a real-time view of a fleet’s operation can provide both short and term benefits in the commercial auto insurance sector.

“This allows brokers to become true risk managers for their clients,” he says. “Common problems that impact the performance of many vehicle fleets, such as vehicles being driven in a dangerous manner, vehicle health, excessive fuel consumption and vehicle location, can be rapidly identified. This adds to the broker value proposition,” Warren says.

Roadblocks to adoption

With the range of potential advantages for commercial fleets of all sizes, a valid question is why is the take-up rate of telematics solutions relatively low, especially for smaller fleets? Estimates show that fewer than 20% of commercial fleets with between five to 20 vehicles have adopted these data solutions.

Sources suggest a main reason behind that could be a lack of awareness among smaller commercial clients. “With telematics still in its infancy, it’s still seen as a nice-to-have, but not an essential, tool for fleet operators,” says Warren. “There is a lack of understanding that telematics is plug-and-play technology with an easy-to-understand web interface,” he adds.

“We see opportunities in the smaller-sized fleets, businesses that may not even consider themselves as having a fleet,” says Christopher Dell, senior director, product development and management for IMS. “They are not actively looking for a solution, but they have the same concerns (as large fleet operators).”

Others agree with that assessment. “Small fleet management is an underserved market at this stage compared with the long-haul trucking market, with substantial opportunities for insurers to capitalize on the rising interest and growth in this sector through commercial UBI,” notes Warren.

MATTERS OF SIZE

For large fleets and long-haul trucking firms, the challenges posed by telematics are the exact opposite. Many companies may have already adopted their own proprietary data and tracking systems, raising questions about the applicability of insurance-based telematics solutions.

“That is an area we are still working through from an industry perspective – we are looking at how we can take that data in on behalf of the insurance carrier and still provide the same kind of information in terms of risk analysis that is required so they can make the assessments,” Dell reports.

“It is not about displacing, but rather integrating that technology and how we do that in a cohesive manner,” he says.

Privacy concerns

Another familiar possible roadblock is client concern about usage of data and privacy in data collection. “As a broker, we are able to work with the customers and the markets, so the markets have to understand what the data is telling them and the customer has to understand what the data says about how their fleet performs,” Mansfield says. “As an intermediary, we can bridge those two and balance the use of data with each individual client’s perspective or concerns.”

Data and privacy issues extend to regulators as well , McTavish notes. “We have to communicate with regulators on what the ultimate goal is here,” he says.

“It is not to collect data to punish the bad folks; it is to collect data to help people that have some fleet management concerns or personal driving concerns to mitigate those losses through actual changes in behaviour,” he adds.

Warren notes that the “Fleetadvisor product ensures that the data is owned by the consumer. With the fleet manager’s consent, brokers – and, in some cases, insurers – will have viewing access to the data. This is a win from a consumer perspective,” he says.

Overcoming obstacles

Even with these potential challenges, sources say that the opportunities in commercial auto and fleet management far outweigh the obstacles. “We see this as a very exciting intersection where we are able to offer that fleet management functionality for a distribution channel that has a much higher penetration rate than other solutions out there,” says Dell. In particular, the role of the broker will be pivotal in the adoption of telematics for commercial auto in the months and years ahead.

“The commercial policies are higher value, higher margin and not as straightforward as personal lines,” Dell says. “Brokers are in a unique position where they can have that one-to-one client relationship – there is more opportunity for differentiation in the commercial space.”

McTavish says the role of telematics in Canada “has taken on a life of its own. The answer doesn’t have to come from one source. Along with self-aware, connected and driverless vehicles, there is this whole other avenue of products that will require the industry to come up with new and innovative solutions on both the personal and commercial side of things.”

When it comes to insurance, sources say the collection and interpretation of data will be king. “I think data is the critical thing. We have to embrace the opportunity and understand what that looks like for this industry and what the role of the broker is,” Mansfield says.

“If we don’t understand data and telematics, I think we miss an opportunity to understand how it can benefit consumers,” he argues.

“Data provides patterns of information that lead to predictive knowledge. When you know better, you do better,” Warren observes. “Over the next couple of years, we believe there will be more insurers offering discounts to commercial clients that have telematics devices in their vehicles,” he concludes.