Emerging technologies and innovations are transforming the insurance landscape by enabling new ways to measure, control, and price risk, engage with consumers, reduce cost, improve efficiency, and expand insurability. Telematics is one of those innovations. From on-demand vehicle asset tracking to supply chain monitoring, owners and insurers have access to a wider range of vehicle data than ever before. And they’re using that data to improve safety, reduce risk, and lower the cost of insurance premiums and claims.
As with any innovation, regulatory challenges and hesitancy among buyers make adoption challenging. But if insurers can move beyond those hurdles, widespread use of telematics can create new opportunities to reduce costs and deliver more value to customers. Here are five things insurers need to know to unlock those opportunities.
1. Data Privacy and Transparency Concerns Create Adoption Hurdles
Awareness of data privacy issues around connected devices like voice-activated assistants, doorbell cameras, and, of course, smartphones, continues to rise. Buyers worry about what data is being collected, who has access to it, and exactly how it’s being used. Those concerns extend to telematics. Sixty-two percent of consumers say they have privacy concerns about telematics, along with 37% of business owners, according to research from Nationwide Insurance.
Telematics providers and insurers must address these issues in order to expand its usage. Experts recommend the following best practices to improve data security and ease customer concerns:
- Provide plain-English communications about your data collection practices.
- Limit data collection to only the information needed.
- Leverage telematics to provide tangible benefits that make it worthwhile for users to share their data.
Research shows that offering value in exchange for data can greatly reduce hesitancy. In the same survey where nearly two-thirds of consumers expressed privacy concerns, 65% said they would be open to telematics if they received a discount in return. Offering additional incentives, such as rewards for good driving, can also help convince wary customers that their data is being used for good.
Insurers can also assuage privacy concerns by partnering with telematics technology providers that emphasize privacy in the design of their solutions. The technology used to gather and send vehicle tracking and monitoring data can potentially be a weak point for security. Best-in-class telematics providers maintain controls that prevent misuse of customer data and protect it from hackers.
2. Regulations Are Beginning to Take Shape
In the long term, regulations will play an important role in shaping telematics data privacy and transparency practices. Currently, there are only a few regulations that directly impact telematics, but new laws and ballot initiatives in large states like California and New York may be an example of what’s to come. For example, several states require that employers notify employees or obtain their consent before installing electronic tracking devices on employee-owned vehicles used for company travel.
Broader data regulations also impact telematics. The California Consumer Privacy Act (CCPA) gives consumers the right to know how their personal information is being used. They can also request that their data be deleted or restrict how it’s used. But exceptions to the law make compliance tricky. For instance, information covered under the Driver’s Privacy Protection Act of 1994 and the Gramm-Leach Bliley Act may be exempt, creating some ambiguities about the application of the law.
These ambiguities will persist as data privacy laws evolve and as legislators catch up to the capabilities of the technology. Telematics relies on an ecosystem of technology providers, vehicle manufacturers, app developers, and insurers. Maintaining compliance requires coordination across that ecosystem. Besides working with experts in data privacy laws, insurers should partner with telematics providers that deliver capabilities needed to comply with current regulations as well as adapt to address new policies in the future.
3. Telematics Can Eliminate or Increase Unfair Pricing Practices
Telematics have the potential to eliminate discriminatory pricing practices and replace them with more fair processes. However, some consumer advocates are raising concerns that telematics data may be used to unfairly raise rates based on demographics or socioeconomics. Even though discrimination against protected groups is prohibited by law, using artificial intelligence and machine learning creates the potential for proxy biases to seep into underwriting practices. For example, some advocates worry that charging higher rates for people who work late-night shifts may disproportionately impact Black and Latino drivers.
These biases threaten to undermine the goal of usage-based insurance (UBI) programs. UBI aims to make insurance pricing fairer by basing rates on individual driving behavior instead of solely leveraging historical data. Regulators are in the early stages of addressing concerns around unintentional biases in the algorithms used in telematics-based pricing. The National Association of Insurance Commissioners has created best practices for state agencies to use in evaluating complex predictive models used for programs like UBI.
Consumer advocacy group Consumer Federation of America (CFA) is pushing for more sweeping reform. They want regulators to require insurers to:
- Demonstrate the actuarial basis of the data they collect and how it’s used.
- Test algorithms to ensure they’re not unintentionally calculating rates based on factors that are proxies for race, gender, or other sensitive characteristics, as opposed to actual predictive factors.
- Grant consumers access to all data collected for use in claim settlements.
Until a standardized regulatory framework develops, it’s up to insurers to make sure they’re using data to increase the fairness of pricing and not further entrenching biases. New market entrants sell UBI-only products, with some touting that they’ve eliminated or greatly reduced bias in their actuarial processes. While these companies are in their early stages, they reflect the growing importance of social awareness in consumer buying decisions. Insurers should prepare for ongoing, increased scrutiny on these matters from regulators and the general public.
4. Evolving Use Cases Create Opportunity
Use cases for telematics are evolving to incorporate more sophisticated technologies and data analysis capabilities. Logistics and supply chain businesses have used telematics for asset tracking for more than a decade, and many are expanding its use to improve vehicle maintenance and prevent losses. Fleet operators can monitor trucks, containers, and pallets in real time to automate preventive maintenance and reduce unplanned downtime. Operators with refrigerated trailers can monitor and control temperatures remotely and be alerted to generator issues before they turn into failures.
Rental companies use the evolving capabilities of asset tracker technology to proactively reduce risk. For example, a lessee can set a geo-fence outlining where a leased vehicle may be used according to the terms of the lease agreement. If the vehicle leaves the designated area, the tracker can alert the rental company so it can investigate further. By taking early action, dispatchers can prevent unauthorized usage and shorten the time needed to recover a stolen asset.
At the consumer level, parents are using telematics to improve safety and reduce the cost of insuring teen drivers. Parents can keep track of their child’s location, as well as unsafe driving behaviors like speeding, hard braking, and phone distraction. These same systems can also be used to monitor older drivers.
These emerging use cases aim to mitigate risk, and they already play a role in insurance pricing and risk assessments. To increase adoption of telematics, insurers should continue to raise awareness of its expansive capabilities and the value it can offer.
5. It’s an Important Tool for Commercial Risk Mitigation
Risk mitigation is perhaps the area where telematics holds the most mutual benefit for insurers and commercial customers. In a survey of mid-market business owners with commercial fleets, safety issues dominate their top concerns:
- Distracted driving among employees
- Safety of employees driving fleet vehicles
- Driving accidents involving fleet vehicles
More than 80% also noted the rising cost of insurance as a top concern. Insurers can add value to their services by advising clients how to leverage telematics to improve driver safety and reduce claim costs. The Department of Transportation found that using telematics to monitor unsafe events and providing driver training and feedback resulted in a 60% reduction in unsafe events for sleeper cab drivers. They also showed a 42% decrease in driving at speeds over 65 miles per hour.
Insurers can provide fleet operators insights on which high-risk driver behaviors they should monitor. By monitoring those behaviors over time, they can track trends, identify root causes (such as drivers being in a rush), and develop solutions.
Discover the Full Potential of Telematics
Telematics will continue to evolve and transform the way vehicle owners and insurers gather and use data. The telematics solutions insurers choose to integrate and offer their customers will make all the difference in being able to realize their full potential. The ideal partner will help you identify the best solutions for your customers’ use cases, make onboarding and installation easy, and provide assurance that their data is secure.
HoloTrak understands these challenges. To learn more about how we enable you to use telematics to deliver more value to your customers, get in touch with us.