Insurers have relied on black box solutions for Telematics to date. This blog entry will examine the use of SmartPhones as an alternative to the black box and how it may benefit both the Insurer and the Consumer.
The cost of entry into the Telematics market for Insurers has been high to date, however this could be set to change. In a survey from 2012, 27% of respondents stated that the cost of device and implementation of that device was an obstacle to wider adoption. Telematics providers are now investigating the potential use of SmartPhones to not only reduce the cost of entry but provide the consumer with a non-intrusive transition to Telematics.
Traditional black boxes have a high cost of entry due to:
- The cost of the device
- The installation of the device
- SmartPhone applications provide similar capability, however require pairing with the car to ensure some level of confidence to the insurer on the car being used to drive, and also to provide value add services to the customer.
- SmartPhone applications will require a power source to avoid battery reduction on long journeys.
- Accuracy of data is not a key concern – trends and patterns can be identified over a relatively small number of miles.
An iPhone currently provides GPS data, a digital compass and an accelerometer amongst other data generating capabilities. Therefore, not only does it provide the basis for a Telematics application, but consumers are already comfortable with the device and the fact it produces reams of location data from a multitude of devices.
In the last 12 months insurers have been experimenting with SmartPhone solutions as a more cost effective solution to black boxes. Examples of this include:
- Aviva, which introduced an Android application for Young Drivers to test their driving score; this was met with mixed views – based on accuracy of rating.
- Co-op introduced a “try before you buy” application for a SmartPhone that allows consumers to see if their driving style and habits would lead to them benefiting from a Telematics policy. I have tried this application out and it is simple and easy to understand – you get a rating from 1-5 (1 bring very poor and 5 being very good). You simply turn the application on and drive. When you’ve completed your journey you’re presented with your score and some friendly advice of how to improve your score (if it needs improving) – I’m happy to say I scored 3 on my trial with some tips on how to corner at more moderate speeds.
- Direct Line Group announced their intention to enter the Telematics space with a SmartPhone and black box product. This may give them a jump on other leading UK Insurers in this space – who are yet to target the mass market.
- Auto-Line in Northern Ireland introduced an application that comes with a cradle and charger into the cigarette power socket that keeps your phone charged. In addition, the application starts when you start, so you don’t need to turn the application on.
Where SmartPhones will become a viable alternative to black boxes, this is not the end of black boxes. They are currently cheaper to purchase than before. For example Dash introduced a unit that is $10 – ok it is still in Beta mode, but it shows how cheap and small boxes have become.
So will black boxes be applicable in the future? I believe they will still be a primary device for some of the niche segments:
- Young Drivers will continue to be a main market for black boxes due to the risk level.
- High risk mainstream drivers such as those with a high number of penalty points or claims; however this could be for a short period of time until their driving behavior improves.
- Finally there will also be a number of consumers that don’t have SmartPhones or choose not to have one – that market will still need to be catered for.
So, why would an insurer choose to rollout a SmartPhone Telematics solution in place of a black box solution?
- Cost of entry – most consumers will have a SmartPhone, therefore it won’t require an installation engineer or a box to be purchased, so the upfront cost is minimal – once the application has been developed.
- Usability – consumers are comfortable with SmartPhones, they aren’t intrusive. The iPhone has been around for 6 years now and it is commonly known that we all leave a data trail based on what applications we use, where we are and what we do – therefore consumers are getting more comfortable with giving data away – as long as there is benefit for them.
- Reduction in premiums – the Aviva pilot in 2004 didn’t prove cost effective, due to the technology, data and black box costs. The use of SmartPhones means that the Premiums don’t need to be loaded with costs, which will make them more attractive to the mass-market (26-75 year olds) – who would be against the implementation of a black box in their car.
There is one area of concern that needs to be addressed, data privacy. Insurers have to be clear about the usage of data that they collect from applications to alleviate customer fears of selling that data to 3rd parties – consumers will want to know that the data generated from their application isn’t passed onto the Police for speed tracking or to other organizations for commercial use (without their consent).
There is a risk with SmartPhones that the market will be swamped with very similar applications and the consumer will struggle to differentiate. Insurers will need to differentiate their product with innovative pricing models and value added services.
Value Added Services
As I’ve mentioned on other blog entries, Telematics enables insurers to offer other value add services to their customers via the smart phone, which could include:
- Predictive Asset maintenance– if the SmartPhone is plugged into the OBD2 port then it will be able to perform some level of predictive asset maintenance. So for example if you are driving and the application spots that your inlet manifold is about to fail then it can tell you to stop the car and send out a mechanic to sort the problem or take you and the car to the garage before it fails.
- Breakdown assistance – what if you breakdown in an area you don’t know? The device will know where you are and can inform your insurance company to send a breakdown car to assist you.
- Emergency services support – what if you were to suffer from a crash at the side of the road and required the emergency services, some applications can detect the situation and use Big Data technologies to alert your insurer that can contact the emergency services.
It is a case of when, not if, SmartPhones will become the mainstream application for Telematics. The challenge for insurers is for them to develop a product using a SmartPhone application that is cost effective and attractive to the mass market. That said black boxes will still have their place – the young drivers may still be asked to use a black box whilst their risk remains high.
2013 has seen not only the introduction of SmartPhone applications for Telematics but also new entrants to the Telematics space. Combined, this makes for an interesting 1-2 years where Telematics may finally make the break through to the mass-market in the UK.
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