Many insurers risk being left behind in the telematics revolution as their legacy systems cannot cope with or properly utilise the big data it generates, according to research by SSP.
During 2013, telematics will reach a tipping point as a number of large insurers that have been piloting usage-based insurance policies over the last two years come to market with new propositions, and technology costs continue to fall.
In its paper, 'Time to take usage-based insurance seriously', insurance technology specialist SSP argues that although the benefits to be gained from using telematics are largely accepted, many insurers are still struggling to understand how to manage the data that it produces and are hamstrung by systems that are no longer fit for purpose.
The paper highlights that if insurers playing in the motor market are to remain competitive then they need to implement more targeted underwriting and develop niche products.
According to the research, although today there are currently only around 300,000 telematics-based motor policies, this could increase by 700% to over 2.15 million by 2015, or nearly 10% of the motor market.
David Waring, Insurer Division Director at SSP said: "The motor insurance industry is facing an unprecedented number of challenges brought on by years of heavy price competition, reduced investment returns and increased claims costs. Many insurers are considering how to implement innovative telematics solutions to develop more accurate pricing, improve risk management techniques and deliver a better claims service.
"The development of 99% accurate apps and the advancement in smartphone technology means expensive hardwired black boxes are no longer the only option for collecting driving data. With a cost per policy of around GBP25 and falling, the use of smartphone apps makes it possible to offer telematics to the mass market, not just high-risk drivers."
The paper acknowledges that for most insurers it is a huge undertaking to change their existing technology platforms, but with consumers likely to demand more information more regularly, and in a variety of formats, it is an essential move.
Insurers are advised to take the move into telematics and the wider world of big data in three steps:
- Enter the market cautiously, partnering with specialist service providers to reduce risk, cost and complexity
- As telematics goes increasingly mainstream and becomes a larger part of the insurer's business, gradually bring the necessary skills and operations in-house
- Ensure that their servicing and administration platforms are agile and flexible enough to cope with rapid changes in product, pricing and new data sources across all distribution channels.
Waring added: "Consumers are increasingly demanding - they don't want to be limited in the services they receive. They expect insurers to be delivering quotes that are based much more on their individual risk. Telematics is only part of the big data revolution but it is a crucial stepping stone into that world and the sooner that insurers engage, the sooner they will start to develop the new capabilities they need to compete in the future."