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Taking a smarter route on motor insurance

The escalating cost of motor insurance premiums has become a major issue in the UK, with leading UK insurers being called to a summit by the Prime Minister to consider ways of addressing the problem.

Telematics, or pay-as-you-go insurance, was raised as one possible solution and certainly has a role to play as part of a broader package of measures.  Using in-car connected devices to monitor how a car is being used, and then analysing the data to assess risk for individual drivers, offers insurers a way of setting insurance premiums that will deliver lower premiums for some.  And, with automotive manufacturers increasingly building sensors that can measure speed, acceleration and location into even their lower-cost vehicles, the practical barriers that thwarted earlier attempts by insurers to introduce telematics are falling.

Smart technology such as telematics can help motor insurers address a range of issues, including regulatory compliance (particularly the European Court of Justice ruling preventing insurers from setting premiums on the basis of general data associated with gender), the current drive to reduce premiums, the ever-present pressure to increase  cost-efficiency and  the need to develop new and competitive products. However, it also presents a number of practical challenges.

How then can motor insurers considering introducing smart technology such as telematics to their business do so successfully? In PA’s view, they need to prepare carefully by considering the implications of this change in three key areas: data management, pricing and systems. 

Data management

Implementing telematics will require insurers to hold, analyse and report on large amounts of additional data sent from in-car devices via mobile networks rather than held within insurers’ on-site systems. Many insurers have already invested in these capabilities to meet their Solvency II data management requirements and should therefore consider ‘piggy backing’ on this to facilitate the implementation of telematics.  

New insurance product development and pricing

The information about car-use provided by telematics will provide insurance product development teams with the opportunity to bring new products to market. To realise this opportunity, insurers will need to create the organisational environment and connections that allow product development specialists to collaborate effectively with actuarial and underwriting teams to use the data from telematics fully.

Systems development

Insurers planning to implement telematics need to address the challenge of developing systems that can collect data from cars, interpret it and apply the pricing models – even when vehicles change owners.  Policies need to be linked to individual drivers, not in-car devices, yet this needs to be done within the context of respecting users’ privacy.

PA acts as delivery partner to many leading organisations in the insurance sector, including Axa, Allianz, Aviva and Legal & General, to enable them to respond to the multiple challenges of regulatory compliance, delivering growth, restructuring and cost reduction. In addition we bring smart thinking to the wide range of organisational challenges and business opportunities our clients face as smart technology develops.

To find out how PA can help your organisation understand how to use smart technology solutions such as telematics please contact us now.

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