What is Telematics? Telematics, in an insurance context, is any use of telemetry to assist in the marketing, underwriting, pricing or claims management of an insurance product.

Specifically with respect to motor insurance, this means utilising data from telematics ‘boxes’, smartphone apps or on-board computers to assist with this range of product management functions.

Telematics and Australia’s CTP schemes

Various markets around the world have adopted telematics-based motor insuranceInternational markets have adopted products more rapidly

than here in Australia and each market tends to have its own

specific set of drivers.

The UK market grew rapidly in the mid ‘noughties’ off the back

of the bodily injury liability crisis that made most young drivers’

premiums unaffordable.

In Italy, bodily injury fraud was one of the strongest contributors

to the early adoption of telematics. Telematics provided a way

for the insurer to defend against escalating numbers of bogus

bodily injury claims. In South Africa, high theft and carjacking

rates were drivers of that market’s early adoption of telematics.

OTHER SERVICES

INSURANCECOMPANY

Claim handling

Data Mining

Pricing /UW

Roadside Assistance

Navigation

EmergencyServices

Vehicle On-boardComputer

Electrical

Odometer

Accelerometer

Brakes/Exhaust

Engine INSURED DRIVER/VEHICLE

Telematics platforms have the potential to impact safe driving and road safety management.

Each of the World Health Organisation’s Five Pillars of Road Safety can be influenced by telematics technologies.

Motor insurance offers a way of incentivising safer driving behaviour

Generally bans on dangerous driving behaviours don’t work well by themselves. The US experience of mobile phone bans shows

mixed experience at best, according to the Insurance Institute for Highway Safety’s review of nine separate studies 1. They concluded

that despite the increasing number of laws limiting phone use, there was little evidence of improved behaviour or incident experience.

Motor insurance offers a way of incentivising safer driving behaviour in an ongoing way. Premium reductions and other financial

(and non-financial) incentives are being used in telematics-based insurance products overseas to reduce motor vehicle incidents

and drive down the cost of insurance.

RAC conducted a survey of telematics use across 1,000 of its business customers. 43% of respondents reported reductions in the

numbers of accidents involving staff, and 50% reported reductions in speeding offences 2.

There are a number of areas where telematics could assist in managing CTP schemes and in road safety and management

more broadly:

Area Potential

PricingAllowing insurers greater flexibility in ‘risk-rating’ of CTP cover would provide incentives for people to change behaviour. It’s easier to change the way you drive than your gender.

Claims management First notification of loss for insurers and the use of telematics information to assist with the claims triage process.

Incident ResponsePost-crash response is considered an integral component of overall road safety. ECall regulations in Europe have taken effect and have driven the adoption of telematics devices (albeit with limited application) across the continent.

Fraud mitigationBodily injury fraud is a significant contributor to overall CTP premiums and telematics can assist in restricting the level of fraud. This could have a material impact on CTP premiums.

Road ManagementThe collection of statistics can help inform road management and safety strategy by government agencies and other stakeholders: identifying dangerous behaviours, blackspot management, road usage and wear.

Road safetymanagement

Safer roads

Safer vehicles

Safer road users

Post-crashresponse

1 2 3 4 5Telematics can1 and 2. Assist road management - speed zones, pedestrian crossings, alerts 3. Assist in vehicles safety: tyre wear, engine diagnostics etc 4. Improve driver safety and incentivise behavioural change 5. Play a large role in improving post-crash responses: response times incident information

1“Cellphone and Texting Bans: Evidence of Effectiveness in the United States” , Engaged Driving Symposium March 2014

2 RAC Telematics Report 2016 – survey conducted between September 2015 & April 2016.

Case Study

The NSW Government recently made changes to the regulation of the “point-to-point” market that covers taxi, hire cars and ride-sharing operations. These changes have generally been designed to provide a more level playing field for participants.

To achieve this, a revised pricing structure has been designed that involves a vehicle usage component. The total premium paid consists of a base amount plus a cents-per-kilometre component, subject to an overall cap on the premium amount. These changes have spurred the roll-out of new telematics-based technologies in vehicles – in order to comply with the requirements of the new premium structure, and also to allow vehicle owners to better manage their insurance costs. This could have implications for all CTP coverage in NSW and could propel the case for more general usage (or behaviour)-based premium

structures.

Are we now ready to use telematics?

The sharing economy is just one of a range of disruptive technologies that are forcing us to change the way we think about insurance. There have been a number of key impediments to the broader adoption of insurance telematics in Australia, and these

may have less impact in the coming years.

Area Current impediments Potential

Bodily Injury Cover

In many overseas jurisdictions where telematics has become popular, third party bodily injury is included in “comprehensive” cover. This means that there is a much larger premium at stake with which to incentivise better behaviour and absorb the technology costs.

Changes underway in Australia’s schemes will provide more flexibility to insurers in pricing CTP policies. This will allow them to utilise telematics devices more broadly in product pricing and management.

The NSW Government just released plans for a telematics trial of 1,000 young drivers in connection with the state’s CTP Scheme. This trial is seeking to establish the effectiveness of telematics technology in changing driver behaviours. The trial is scheduled for the second half of 2018.

Market Concentration

Australia’s motor insurance market is dominated by two large players, and the level of competition is perceived to be substantially lower than in the US and EU marketplaces. This can create a level of inertia when it comes to the adoption of potentially disruptive technologies.

In recent years, ‘challenger’ insurers have managed to make some inroads into the dominance of the big insurers, and the market has become somewhat more fragmented. This could encourage further disruption in coming years.

High Technology Costs

Until recently the overhead technology costs of telematics devices had been impractically high, particularly where hardwired ‘boxes’ were required. The amount of premium at stake (without third party bodily injury) was too small to absorb these costs profitably.

More recently, both app-based and pre-market (in-built) telematics solutions have mitigated this to a large extent.

App costs are small compared with hardwired boxes, and pre-market solutions mean the technology is already in the vehicle – effectively paid for by the consumer when they purchase it.

In-built telematics devices will also substantially change the customer experience, and will provide a more streamlined interaction with the ‘connected’ car – for example, the driver will receive messages about their driving behaviour, in a timely and convenient way.

ANZIIF Professional Services Firm of the Year Winner (Aus & NZ)Six times Winner ANZIIF Service Provider of the YearANZIIF Hall of Fame

Jon Tindall +61 2 8252 3486jon.tindall@finity.com.au

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