PTOLEMUS Consulting Group

Liability aspects related to Pay As You Drive (PAYD) insurance 

Liability aspects related to ITS applications ITS Action Plan

Frederic Bruneteau, Managing Director, PTOLEMUSBrussels - 12th June 2012

PTOLEMUS

PTOLEMUS in PAYD

Who we are

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• The 1st international strategy consulting firm specialized in telematics, location-based services & mobility

• Strategy combined with real industry expertise and operational experience

• A focus on achieving results for our clients

• Close links with the mobility ecosystem- Advisory Board Member of EENA(1)

- Member of ERTICO's(2) eSafety Forum and eCall HeERO Observers Group

- Close connections to national ITS organisations, ACEA(3), ASECAP(4), GSMA(5), etc.

- Speakers at most leading industry events & conferences- Regular contributor to Telematics Update- Steering Committee Member of Mobile Monday (Brussels)

from Ptolemy, the Egyptian savant who

built the 1st map of the world in the 2rd century

(1) European Emergency Number Association (2) ITS Europe (3) Association of European Car Makers (4) European Association of Tolled Motorways Operators (5) GSM Association

PTOLEMUS

PTOLEMUS is the first management consulting firm focused on telematics and geolocation

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Mobile content and social networking Application stores, crowd-sourcing, etc.

Navigation & location-based servicesMaps, traffic, fuel prices, speed cameras, weather, parking,

etc.

Usage-based charging PAYD / PHYD insurance, Road User Charging,

PAYD car leasing & rental

Telematics & Intelligent Transport SystemsConnected car, tracking, fleet management, eCall, bCall,

Stolen Vehicle Recovery, Car As A Service, connected train, etc.

Positioning / Location enablement

M2M & connectivity

Our fields of expertise

Strategy definition

New market entry, business plan development,

board coaching and support

Evaluation of investmentStrategic due

diligence, market

assessment, feasibility studies

Innovation management

Product & services development,

roadmap definition, project

management & launch, patent

strategy

Business development

Partnership strategies,

response to RFPs, lobbying

Our consulting services

Procurement strategy

Specification of requirements,

launch of tenders, supplier negotiation

& selection

Implementation

Project & programme

management, risk analysis &

mitigation strategy

Introducing PTOLEMUS

PTOLEMUS

PTOLEMUS in PAYD

We have acquired substantial experience in helping all players in the geo-connected mobility ecosystem

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Telecom operators

• Partners in Paris, Munich, Milan, Boston and Brussels

• +50 years of experience in mobile• +50 years of experience in telematics

Insurers & assistance providers

Montezemolo & Partners

Financiers

ITS operators

Telecom infrastructure providers

OEMs & telematics vendors

Consumer electronics makers

Content & application providers

Positioning solution providers

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Introducing PTOLEMUS

PTOLEMUS just published the Insurance Telematics study, the most comprehensive report on the subject

• 405 pages of analysis on the PAYD / PHYD market based on - 83 interviews in 18 countries- 220 figures (charts, tables...)- 2 years of research- Our experience & vision of the

ecosystem incl. OEMs and TSPs

• Case studies & learnings from ALD Automotive, Amaguiz, Coverbox, Discovery Insure, GM OnStar, Hollard Insurance, Insurethebox, Liberty Mutual, MAIF-MACIF, Norwich Union, Octo Telematics, Progressive, Solly Azar, State Farm, Unipol, Uniqa, Zurich

• A strategic analysis of the value chain evolution including - The impact of eCall- The impact of the smartphone- The impact of the Test-Achats /

gender ruling

• 10-year market forecasts - Country's readyness to telematics- Country forecasts for Italy, the UK,

France, Germany and Russia- Bottom-up estimates of the number of

policies for each insurer in EU countries, the USA and in South Africa

• Insurer's telematics market model results in Italy, the UK, France and Germany

• A handbook of suppliers' solutions including our own evaluation & ranking

• A complete set of recommendations to underwriters, TSPs, OEMs and governments

More than a research study, a real strategic

market analysis

Note: A free 60-page extract can be downloaded from www.ptolemus.com/insurance

PTOLEMUS

Introducing insurance telematics

For a detailed definition of these terms, please refer to our Insurance Telematics Study

A few remarks on the context of this presentation

• In this presentation, we will use several expressions interchangeably - Although they have slightly different meanings

- Pay as you Drive (PAYD) insurance- Pay how you Drive (PHYD) insurance- Insurance telematics- Usage-based insurance (UBI)

• This is not a legal analysis but an analysis of risks and potential liabilities in the domain of insurance telematics

• We have focused here on the provision of insurance itself - Although insurers can also provide numerous related Value Added Services (eCall, bCall, SVR, etc.)

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Source: PTOLEMUS

What is insurance telematics?

• Most current insurance policies use static / statistical criteria to evaluate drivers' risks - Age, gender, vehicle make & age, place of residence, occupation, etc

• Insurance telematics is a policy based on these criteria and 4 new dynamic parameters (cf. chart)

• It requires the customer's acceptance to obtain this data through a telematic device installed in the vehicle

The driving risk starIts basic principles

Introducing insurance telematics

Distance

Static criteria

(statistical)

Time

PlaceDriving behaviour

Source: The New Yorker, mchumor.com

On the Internet, nobody knows you're a dog

Introducing insurance telematics

In the car, neither...

In the current motor insurance market, good drivers are paying for... dogs

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PTOLEMUS

Despite insurers' concerns about user's acceptance of PAYD, it is gradually becoming mainstream

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• 94 trials and 54 commercial launches worldwide

• Success stories in multiple countries, notably Italy (Unipol) and the US (Progressive)

• Overall, we estimate PAYD-equipped vehicles at 2.5 million worldwide

• In Europe, the Test-Achats / gender ruling will give further impetus to the PAYD market

PAYD has passed the trial phasePAYD trials & launches globally

Introducing insurance telematics

USA

UK

Italy

France

South Africa

Germany

Ireland

Belgium

Spain

Other

0 5 10 15 20 25 30

Source: PTOLEMUS Insurance Telematics Study

PTOLEMUS

Introducing insurance telematics

Source: PTOLEMUS Insurance Telematics Study

Numerous potential models exist for insurance telematics

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Existing and potential (italic) technology solutions

Fixed Removable

Line-fitted

Aftermarket

Portable

Black box

OBD device

PND Smartphone

FMS port-attachable box

Embedded system Semi-embedded system Vehicle keys

Self-energised modules

PTOLEMUS

Responsibilities

Although the PAYD service provision can be complex, the insurer will be the primary holder of potential liabilities

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VEHICLE PRODUCTION

DEVICE PRODUCTION

SERVICE PROVISION

DATA MANAGEMENT

TELEMATICS PROCESS

MANAGEMENTDISTRIBUTIONDEVICE

INSTALLATION

Insurance telematics - A complex service chain

Source: PTOLEMUS Insurance Telematics Study

PTOLEMUS

• By the data manager - E.g. the data of a young driver transmitted to his parents who pay the premium

• By third parties - Through the data manager

• By third parties, e.g. through hacking of the on-board device

• Defective installation of the device

• OBD dongles or black box - connected to the CAN-bus - interfering with critical data

• Attached device causes injuries during an accident or otherwise

• Driver feedback device leading to driver distraction

• For the calculation of the premium

• For the indemnification of a claim

Insurance cancelled as a result of an

infringement to the conditions, e.g.

• Due to overspeeding

• Due to tampering with the device

New potential liabilities

Potential liabilities related to the provision of PAYD insurance

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Misuse of personal data

Telematics device causing a damage

Telematic data called into question

by policyholder / other insurer

Lack of insurance

Note: Only liabilities directly linked to telematics are shown here Source: PTOLEMUS

I II III IV

PTOLEMUS

New potential liabilities

An example, the Viterbo case (2006)

• An accident in Rome, in April 2004 between a Fiat Marea and a Volkswagen Passat

• The driver of the Volkswagen Passat had a Unibox telematics device installed in his car

- Equipped with a 2-axis accelerometer- Device threshold for an event to be recorded was 2G

• The driver of the Fiat Marea demanded compensation to Unipol and Spa for personal injuries from the accident (a whiplash injury)

• The case reported minimal deformations of the 2 cars. The estimated repair cost was appraised at around 300€

• Unipol dismissed the claims of the plaintiffs based on the fact that the OBU had not reported an impact above 2G

- The device was functional - It had been sending data regularly and had already reported a crash of 2G before the accident

- The impact speed could not exceed 7 km/h, i.e. an acceleration of less than 2G

• As a whiplash injury could not occur below an acceleration event of at least 4G, the case of the plaintiff was dismissed

13Source: PTOLEMUS Insurance Telematics Study Note: 1G corresponds to 9.8 m/s

III

PTOLEMUS

Limitation to these potential liabilities

Source: Conditions on the left relate to a Coverbox (UK) contract

Telematics is not a mission critical system

• It is obviously crucial for the insurer to be able to certify that the premium is

- Calculated in an objective manner, i.e. based on clearly identified parameters

- Reliable

• However, the system relies on several weak links, which cannot make it mission critical

- The GPS constellation is far from being 100% reliable and accurate

- The connectivity may not be always available, which could potentially lead to a data loss

- The mapping data - used to calculate the mileage - is often incorrect

- The power source or the device itself could stop functioning

• As a result, it is good practice for the insurer to call on back-up policy conditions in case of a data loss or inaccuracy

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PTOLEMUS

Managing risks

What have done insurers so far to reduce potential telematic-related liabilities?

• Generally speaking, relatively little, as risks related to telematics have not always been identified

• The reason is simple. There is a lack of cases that would push insurers to adopt a more systematic approach

• However, their contracts generally exclude their responsibility when

- The device is not working due to the user's tampering or other actions (e.g. the repair by a third party)

- The device has not been installed after the start of the policy contract

- Positioning & network connectivity is not available

• Progress is seen in - Data minimisation - Crash reconstruction - Transparency in the calculation of the premium

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PTOLEMUS

Managing risks

Source: PTOLEMUS

How have insurers attempted to alleviate each of these risk categories?

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• User conditions create agreement with polycholder

• Secure tunnel between box & server

• "Secure" IT architecture - generally insufficient

• Data minimisation

Relatively little has been made in this

respect

This will become more important to address due to the emergence of OBD dongles and driver

feedback modules in Europe

• Link between data & premium is not always clear, creating risks

• Crash reconstruction capabilities: but remain only one of several evidences (given lack of 100% reliability)

Not covered today, i.e. insurers have not

ensured that the policyholder is

informed fast enough in case of a

cancellation of his/her policy

Misuse of personal data

Telematics device causing a damage

Telematic data called into question by policyholder or

other insurerLack of insurance

I II III IV

PTOLEMUS

A major reduction in liabilities overall

Source: Zurich Fleet Intelligence (based on a trial in the UK with a Rentokil fleet of 250 vehicles)

Overall, insurance telematics can lead to a dramatic reduction in the insurer's liabilities, due to improved driving

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Change in Own Damage incident rate of a commercial fleet (UK) Such results require a holistic

approach to improve risk management

(which includes telematics)

PTOLEMUS

Conclusion

On the whole, PAYD radically reduces insurers' risks but creates new liabilities, that must be better addressed

• We expect PAYD to represent 60 million policies in Europe by 2020

• Insurers can benefit from a reduction in claims losses of 10%-70% as a result of a PHYD scheme, which revolutionises the business model of auto insurance

• In our view, however, a number of related risks can - and should - be better addressed by insurers

• If not, we expect litigation cases to emerge, regarding

- the calculation of the premium - the indemnification of claims- the misuse (or a disagreement on the use) of

personal data

Thank you!

Source: PTOLEMUS Insurance Telematics Study

PTOLEMUS Consulting Group

S t r a t e g i e s f o r M o b i l e C o m p a n i e s

Brussels - Paris - Milan - Munich - Bostoncontact@ptolemus.comw w w. p t o l e m u s . c o m

Frederic Bruneteau, Managing Directorfbruneteau@ptolemus.com

+32 4 87 96 19 02 

@PTOLEMUS