After purchasing motor cover for his two teenage boys, David Waring challenges the insurance industry to prove that telematics is more than a clever marketing ploy.
Having failed their driving tests first time round, Jake and Toby both passed at the second attempt. Both of them were very pleased with themselves and, at the same time, disappointed that their sibling had also risen to the challenge, thus denying the opportunity for lifelong bragging rights.
From my and Mrs Waring’s point of view, this great achievement brought mixed emotions. How proud we were that our fine sons had ticked off yet another rite of passage; how delighted we were that we would no longer have to act as unpaid taxi drivers, and could even call on their services as chauffeur when we needed a lift home after one too many in the pub; how horrified we were that this signalled a whole new world of worry and sleepless nights…
Anyway, like it not or not – equipped with their massively underpowered one litre Vauxhall Corsa and a boyish enthusiasm – they have now both become part of the Great British motoring public.
However, before handing in my taxi licence and letting them loose on the roads, they needed some insurance cover. As I had discovered from some earlier research, this was not going to be a simple (or cheap) exercise, even for someone who works in the industry.
I had already decided that I wanted to go for a telematics-based product that would provide helpful driving feedback and, hopefully, make my lads safer drivers. With premiums of £3,500 or more, I wasn’t going to rely solely on the meerkats, robots and opera singers – I needed some proper advice, and decided to turn to some of my contacts in the traditional broker market. It turned out, however, that, apart from a handful of the big nationals, usage-based insurance (UBI) products are beyond the reach of the broker community. Even intermediaries specialising in niche and high-risk drivers were unable to unearth products that would be suitable for Jake and Toby.
This lack of UBI schemes for the intermediary channel is a problem that SSP has recognised and addressed with the launch of SoteriaDrive. The first scheme for SoteriaDrive, which opens up telematics to a potential market of over 1,000 brokers, has been signed off, and several more insurers are set to go live during the next couple of months.
So, turning my attention back to web-based propositions and trawling through multiple specialist sites (a fairly long-winded process compared to the aggregator world), the choice was eventually narrowed down to two options.
My final decision was made on more than just price; it was heavily influenced by the insurer’s approach to driver development. Under the policy, driver feedback is regularly available and all three of us have access to it. I can keep tabs on how my sons are behaving behind the wheel – they need to work on their cornering, but are obeying speed limits and braking smoothly – and, as a parent, I can help them improve.
But, in general, the market is failing to reward its telematics customers appropriately in return for their safe driving and the valuable data they are making available. Rather than being meaningful propositions that benefit both clients and insurers, one could be forgiven for thinking that many telematics offerings today are a bit of a gimmick. If Jake and Toby prove to be safe and competent drivers, there is the opportunity for them, (well, me), to earn a whole 10% of the premium back over the course of the year. Now a 10% discount on a normal policy, whilst certainly not generous, could be seen as acceptable. But when I’m being charged thousands of pounds based on the initial assumption that the insureds are high risk, and they have then proved to be otherwise, this reward is positively miserly.
The big reduction, I’m told, comes in year two, making telematics products just like any other standard motoring product, where a good annual performance is rewarded by a no claims discount.
The lack of original thinking is incredibly frustrating. Skilled underwriters are able to determine the risk profile of a driver based on three months or less of detailed telematics data, so why don’t providers offer the market something different? Why not renew quarterly or even monthly rather than annually?
It seems to me that insurers are charging teenage drivers (or in this case, their parents) many thousands of pounds, even if they have proved themselves to be safe and competent. Telematics providers have pledged to rate motorists on their individual abilities, but they are being treated like every other young driver – an expensive accident waiting to happen.
To some extent, providers want to have their cake and eat it, taking the opportunity to gather masses of driver data and then not being confident or, perhaps, creative enough to use the information to create truly individual pricing.
This got me to thinking about how other industries treat young people. Jake is in his second year at university and, when he was a fresher last year, the banks were all falling over each other to win his business. They offer cash back, free overdrafts and all manner of incentives to secure student bank accounts. Why do banks do this when all their young customers do is avail themselves of free banking services and interest-free overdrafts during their student years? Maybe it’s because banks are more interested in lifetime customer value than short-term gain. Building strong customer loyalty with the chosen target market is a sound strategy – how often do customers switch banks?
The big question is: can insurers do the same? There is a great deal of churn in personal lines, with many policyholders changing providers every year, but much more can be done to aid retention. Data from telematics, as well as external, internal and underwriting sources, can help providers discover which customers are worth keeping – and should therefore be pursued more aggressively – and which should be allowed to lapse.
Why charge young drivers, say, £3,000 in year one, £2,000 year two and £1,000 in year three? Why not lock drivers in to more cost-effective, long-term policies and smooth the curve, retaining customers and providing cash-strapped young drivers with a premium payment holiday?
Of course, I understand that this kind of approach would be fraught with difficulty and danger. What if there are multiple claims? What if the car is sold? What if the driving behaviour deteriorates? What if payments aren’t met? Well change is never easy, but, as a principle, this approach, or something equally creative, would have plenty of merit.
At the very least, it would prove that telematics is more than a slick marketing exercise and is a product that performs as promised, rating drivers based on their ability on the roads and rewarding them accordingly.
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