In most cases, the question of whether should or shouldn't I use it to start a telematic project comes down to a few specific key points.
Is it good for improving my risk assessment?
Whenever you ask your actuaries "What will make our risk assessment better?" the answer in 90% of the cases will be more data. Telematic providers usually use this point as a selling point of the products.
Although, in Theory, telematic can provide your actuaries with more parameters to analyze, the road to this additional data will not be swift or cheap. make sure you are willing to pay the price! Ask your actuaries, what is the minimal amount of data they need to start researching the benefits of telematic data on their risk assessment. I promise that the amount of data and the financial consequences of getting this data in onboarding and infrastructure costs will be sobering.
Can I make my company look innovative if I implement it?
Telematic is Trendy now. Many companies think that this is the pinnacle of insurance technologies as this is a technology that is very visible to the customer. It creates an illusion of moving forward and the feeling of insurers becoming innovative.
As a tool for innovation signaling it is a great choice for any insurer, it will create a buzz, and a few LinkedIn articles however, it will not be much more than that. The reason is that this technology has existed for a very long time and even taking into account the fact that the insurance industry changes very slowly, it is still a technology that has been published a lot.
Companies have been using this technology in multiple constellations since the beginning of the 2000s. So the wow factor of it is severely degraded, not least by the fact that that many companies have tried to implement this solution and failed miserably.
But I am sure that this is not you. In your case, the tech will work as expected and your customers, who are very different from other car insurance customers will embrace this technology immediately.
But just on the off chance that this time it will be like every other time before this one, you should ask yourself if the innovative value is still there and if are you willing to pay for it as much as it is going to cost in project planning, deployment, support, and marketing. Which might be millions in some cases.
I have an app that I would like my customers to use more often will it help?
In many insurance companies, there is an attempt to create an up that will be useful for customers and that customers actually use. This will create a direct relationship with the customer and might convey some brand loyalty which is a huge issue for any issurer.
All insurance companies start in the same place, the idea seems interesting, it is not super expensive and if it works the upside is great. However, the data is very much against the notion that this could work for any insurance company except for Tesla insurance.
To find out the reason most of the companies go through the same process, create an app, try to market it aggressively, and hope people will use it.
To save you this headache I can give you the reason most of them fail right now. Most people do not want to have a relationship with their car insurers unless something happens. This means there are no useful services that you as an insurer can provide via such medium as an app that a customer would like to have or in simpler words, the app will be useless for the day-to-day of your customer.
As I have already mentioned, many companies already come to this conclusion, although at a much steeper price than reading an article. For them, the sunk cost fallacy took over and for them, the logic of the situation goes something like this:- We already invested money in building an app
- No one is using the up regularly
- After examination we understand that there are no regular-use features in the app
- Let's try to find a feature that will need regular use of the app
- Telematic!
I would maintain that this logic is flawed, not least because the "sunk cost fallacy" is an actual brain error that humans have. Telematic products at their core are very day-to-day useful but once you use an app to achieve your goal, you will find that even in this constalation the customer will not want the app to be open. He will want the system to do its job while working in a hidden mode without ever needing to open any apps.
I would like to get differentiation in the market using Telematic! Will I?
The short answer is NO. Maybe in 2010, it would have been cool and new but today it is just another low-creativity solution that an insurer would implement.
In 2023 however, the most advanced companies have already tried and failed with it the least advanced are trying it now and failing it and you will be coming as the last of the pack to fail with everyone.
Learn from their mistakes!
Will I be able to make any money off of it?
Let's just say that the statistics are against you. Many have tried and failed.
The main problem of Telematic is that the infrastructure and its support are too expensive to make a viable business at small and medium scales, meaning that if you can transfer your entire portfolio to Telematic or your portfolio is not over 0.5M insured there is no way this technology will be viable economically.
Insurance is just too cheap of a product with too low margins (in most countries) to warrant any kind of real-time data collection technology that requires state-of-the-art databases, servers, and infrastructure.
Before the comments come, yes I know that Tesla was able to do it and some companies in Italy are running a profit on this tech but this example is the exception that proves the rule. The discussion about Italy being the hotbed of this tech has been going on for years now and no other insurer in any other country, including insurers from Italy was able to make it work anywhere else.
My conclusions
In conclusion, embarking on a telematic project in the insurance industry requires careful consideration and a realistic appraisal of the potential benefits and challenges. While telematics can enhance risk assessment through increased data, the financial and operational costs involved in acquiring and managing this data are substantial. The perception of innovation that telematics brings may be appealing, yet it's important to recognize that this technology is no longer novel and may not significantly differentiate your company in a crowded market.
Moreover, integrating telematics with customer-facing apps can be a double-edged sword. While it seems like a promising avenue to increase customer engagement and loyalty, historical data and industry trends suggest that customers generally prefer minimal interaction with their insurers, making the effectiveness of such apps questionable.
Lastly, the economic viability of telematics in insurance is a critical factor. The high costs associated with infrastructure and support make it challenging to generate a profitable return, especially for small to medium-sized portfolios. While there are exceptions, such as Tesla and certain Italian insurers, these are outliers rather than the norm.
Therefore, before diving into a telematic project, it is crucial to thoroughly evaluate these factors. Assess the minimum data requirements and costs, consider the true value of perceived innovation, scrutinize the actual utility and appeal of customer apps, and realistically appraise the financial feasibility. Learning from the experiences of others in the industry can provide valuable insights and help avoid costly missteps. Ultimately, a successful telematic project will depend on a balanced approach that weighs innovation against practicality and cost-effectiveness.
