The information technology (IT) needed to establish and maintain competitive telematics programs is a constantly moving target. So how do P&C insurers attain the right IT to get in on this growing market?
P&C insurers’ IT systems are under greater stress than ever before. Big data, state rate changes in the U.S. and the replacement of policy administration systems are among the demands taxing these systems. Most companies face some tough choices when it comes to determining when and how to get started with telematics, and then how to keep programs relevant for the company and customer. New technologies and emerging data sources promise to unleash the potential of usage-based insurance (UBI) as a mass-market product but also add to the complexity of the IT effort.
Emphasis discussed potential ways forward with Willis Towers Watson telematics specialists Karen Albright and Katie DeGraaf.
First, can you give an overview of the typical IT options available to insurers chasing UBI market share?
Albright: In very broad terms, the deluxe option, if you like, is an IT infrastructure that’s fully integrated with all aspects of the business, but there’s no getting away from the fact that this is a very big and complex project for most insurers.
Insurers that have launched initiatives or trials relying significantly on in-house IT resources have typically developed minimal systems to support the programs, and used established partners and manageable, manual processes to fill in the blanks. The advantage to this approach is that the insurer is able to bring a reliable product to market while extending IT and analytics capabilities in parallel.
Even so, many insurers have decided to park telematics initiatives for one reason or another — for now at least. Often, we find they get stuck when attempting to define minimal systems and select the right partners to make the deployment manageable and customer-friendly.
There are a select few companies that have made large commitments to develop the full suite of functionality and flexibility to support an insurance telematics program entirely in-house. Even then, IT functions have typically ring-fenced them from other activities to a large degree, minimizing the broader systems’ impact in the process.
Why might current approaches evolve or accelerate?
DeGraaf: One obvious reason is to move in sync with the scale of the market opportunity. Despite the success that a few have already enjoyed in the UBI market, technology is shifting the economics.
Wider consumer connectivity and its impact on the marketing and sales process is the big difference. While UBI pioneers have had to predominantly base a business case on in-car telematics devices to gather driving behavior data, smartphones, connected cars and other data sources from the Internet of Things are now increasing the available and relevant data pool (Figure 1)
Figure 1. Internet-enabled devices, including connected cars, are creating a vast new pool of telematics data sources
In context, personalized insurance quotes will soon be available without drivers first having an insurer provide a device to be fitted in their cars or an app installed on their smartphones. That means policyholders can determine if a telematics policy will benefit them before they buy one. This ability will unlock a much larger consumer market. Throw in that the emerging data providers such as telecoms, auto manufacturers and app developers are actively pursuing ways to monetize data through insurance applications, and you have a compelling case for vibrant UBI market growth.
For insurers’ IT departments, the market trajectory is particularly appealing because it reduces or eliminates the need to manage technology fulfillment since the technology will be supplied by the customer (bring-your-own-device, if you will).
How does this affect the behind-the-scenes working of IT systems?
DeGraaf: The key thing going forward is to create flexible systems. Don’t overbuild, because the market is changing and will continue to change. In the formative years of telematics, for example, some insurers got bogged down in conversations with various application and technology providers, sometimes without ever getting a product to market. Avoid that analysis paralysis. Today’s perfect solution may not be so perfect in the future, so don’t wait.
Can you put those principles into practical terms for insurers and their IT departments?
Clearly, there is no one-size-fits-all approach. The reality is that a program fully integrated into company systems requires a substantial investment, but it’s also true that insurers can get to market quickly and with minimal IT impact by focusing on the right pieces. Figure 2
outlines how, in our view and experience, systems are impacted by telematics programs and what this might mean for designing or adjusting IT frameworks, depending on what companies want to achieve.
Figure 2. Insurance telematics areas of focus for IT systems integration
||Process, design and system impact
||How do customers enroll in the telematics program? How will you apply the discount?
||How do you identify telematics policies; store telematics fields for rating, underwriting and analysis; and apply eligibility rules?
||How do you identify a telematics policy at the point of a claim (emerging application of telematics in the U.S., common outside of the U.S.)?
||How do you identify a telematics policy, and understand scoring impact and user interfaces?
|Integrations with third-party vendor(s)
||How do you receive telematics data and scoring, deliver the technology (devices, apps) to customers, send/receive calls and assess program management reports (e.g., device shipment failed)?
||If devices are involved, how will you manage logistics? Are you going to use a third-party vendor or do it yourself? How will you keep track of devices?
||What are your plans for the telematics data? How will you store them all? How will you build models? Will you get the granular data or just summary data? UBI involves more data than insurers usually handle (e.g., maps, accelerometer and gyroscope data) and is only likely to grow. How much will you rely on third parties to do the number crunching?
Determining the scope of the IT undertaking requires a look at priorities and resources. This varies by company, but we’ll illustrate what might be involved with a hypothetical that is based on our market observation and compares two similarly sized insurance carriers with smaller-than-average IT staffs (Figure 3)
Figure 3. Example: Two similarly sized insurance carriers with smaller-than-average IT staffs
|Company 1: Speed-to-market strategy
||Competitive pressure to get to market fast
- Reduce IT integration time with a dedicated resource to support operational issues
- Combine automated and manual processes to launch pilot
- Incrementally increase sophistication and scale program
||Six to eight weeks
|Company 2: Automation strategy
||Minimal resources to support
||Spend more time on IT integration to develop a well-automated program that requires less manual intervention
||Three to six months
|Company 1 benefits from the real field experience of manual touchpoints.
|Company 2 benefits from scaling faster.
Company 1 is under pressure to quickly deliver a telematics program to market, as its main competitors have already made significant advances. It builds the minimum level of integration into its IT systems and assigns a dedicated resource to manage operational issues. It has a combination of automated and manual processes appropriate for the expected size of its program, with a plan to improve the sophistication of these processes as it learns and its program scales. Using this approach, we have witnessed companies successfully support significant pilots.
Company 2 doesn’t have the same competitive pressure to enter the market and has limited resources to manage ongoing operational issues. It decides to spend more time on IT integration to reduce manual intervention. We’ve seen companies that used this approach successfully support well-automated and minimal-touch programs.
Company 1 benefits from the real field experience of manual touchpoints, but Company 2 benefits from scaling faster.
Many insurers fall in between these two scenarios and will need to rightsize their time to market and level of automation. Company management and IT must assess the impact of telematics processes on their current systems and resources to achieve the right balance.
How long does it normally take?
DeGraaf: Again, it depends on a company’s approach. Continuing with our example, companies such as Company 1 have entered the market in six to eight weeks, while Company 2-type companies typically have taken three to six months.
How can partners help, and how do you identify competent partners?
Albright: It’s very important to choose partners that are a good fit to the telematics program and, going forward, those that have the capability to shift with technology. We’ve both partnered and integrated with insurers and have, along with technology providers and insurers, witnessed many integrations firsthand.
There are many well-established partners in this arena with experience in multiple, complex, scaled insurance applications. We have found that both a partner’s experience and ability to understand, manage and test insurance processes are important. When applied to our examples, Company 1’s partner must have the systems, processes, solutions and testing capability to ensure that operations are efficiently managed with limited resources. Company 2’s partner would need to be able to give real-world guidance on common processes that occur while fulfilling and managing a telematics policy in order for it to build up front.
How do companies integrate potential new partners into their current telematics activities?
Albright: It can be difficult to quickly back-engineer a reasonably well-established program without disruption and the potential to upset existing customers. For some companies in the U.S., a launch or trial in a new state could circumvent this issue.
Are there any partner attributes that will be particularly helpful given the way the UBI market is developing?
Albright: The explosion in the volume and origins of data that can be useful to a telematics program means that partners with experience managing and analyzing diverse, nonuniform and multisource data should increasingly come into their own.
With all these additional data to manage, partners that provide the skills and technology to help format and connect those data to the parts of the organization that need them, often facing a complex web of legacy systems, will be particularly valuable.
Have auto insurers without a telematics program, but with a significant IT infrastructure, missed the boat?
DeGraaf: No, not at all, and more to the point, without a telematics program, they’re likely to miss the opportunity to identify, retain and coach those best drivers while the competition locks them up — leaving them with a higher-risk customer base. Even with a limited investment in time and resources, there are many ways to learn how to use this new information, create a culture of innovation in the company and establish a new dialogue with policyholders.
What’s your advice for insurers that already have telematics products?
Albright: As newer products come on stream that take advantage of the full and growing spectrum of available data, older products will need to adapt to survive. This doesn’t necessarily mean going back to square one, but more than likely, companies would need to figure out how to apply their learnings from traditional data sources to these new data sources, connect to different data suppliers or partners and make sense out of nonuniform data.
What are the broader IT implications for both groups?
Albright: Principally, they need to handle, analyze and share more data. But we’ve also seen that the additional insights gained from new data are causing companies of all sizes and experience levels to review the designs of their entire rating plans, including how to use information available when making a quote or when new leads come in before policy issuance.
How does the availability of extra data impact the customer experience?
DeGraaf: That’s a really great question. Consumers have grown increasingly used to engaging websites and apps that pull them in to a product or service. Insurance is no exception. With the type of companies that are increasingly showing an interest in insurance, including both web giants and technology start-ups, any insurers with a bland customer experience will be disadvantaged before they even start. Here again, there’s an opportunity to rely on experienced partners until such time that insurers build their capabilities. Many partners offer companies a software development kit to integrate their feedback platforms, such as an app with driving behavior feedback and summaries, into existing solutions.
Any final words or thoughts that might encourage or reassure insurers grappling with these issues?
DeGraaf: Whether or not you’ve got an existing telematics program, the market is entering a new phase with all kinds of additional data coming on stream and potentially enlarging the market opportunity.
Strong telematics programs need a strong IT and analytics base — that much we can say with certainty. The danger is overengineering the solution. Build in flexibility, and look at where you currently and will most likely need help from partners. And start now, so you’re not forever playing catch up.
For comments or questions, call or email
Katie DeGraaf at +1 708 714 4401,
Karen Albright at +1 860 281 8138,