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AM BEST'S MONTHLY INSURANCE MAGAZINE




Insight: Call for Collaboration

Data exchanges could lead to insurance evolution in a connected world.
  • TBA - Writer
  • March 2016
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Innovation is as integral to evolution as it is to revolution.

In visible terms, the automobile may be one of the clearest examples. From steam power to the electric motor, the car's evolution suggests that innovations aren't always entirely new creations, and sometimes arrive after rethinking existing methods or technologies. After all, whatever the advances in propulsion, today's drivers still travel in largely the same wheeled boxes as they did a century ago.

So, recently, when advanced telematics devices began to be installed in cars, the insurance industry took notice--and sensed the birth of an innovation.

"Most innovations," noted Peter F. Drucker, author of the classic The Practice of Management, and "especially the successful ones, result from a conscious, purposeful search for innovative opportunities, which are found only in a few situations."

Since the mid-1990s, technology has been sending measurements of a connected car's movements and location back to the automaker. Beyond the use of diagnostics for engine maintenance and emergency communications for the driver's safety, was anything being done with that trove of information?

Enter the innovation. Faced with a sea of driver data, many insurers have been looking for a means of navigation, and a tool to draw insights from telematics-derived information.

Cue the collaboration. Not unlike the way a credit bureau collects data about consumer spending, a telematics data exchange [an area in which Verisk is involved] acts as an open marketplace of driving data that has been contributed by automakers, telematics service providers, and Internet of Things providers, and with the consent of consumers. In the future--as cars, homes, and devices become ever more connected--the exchange model holds promise for more precise insights, and the potential for a portable rating for insureds, an idea similar to a credit score.

An exchange can allow participating insurers to rate drivers more accurately based on their driving habits and behaviors. This could be a bold step in establishing usage-based insurance (UBI), a concept that rewards safer drivers and can lead to fairer pricing--including lower rates for the safest drivers--in the marketplace.

Without telematics data collaboration, translation of automaker data into actionable insights for insurers would be difficult or impossible. Using an exchange, insurers are potentially able to access auto and driver data in the United States without investing in telematics technology and logistical support. Automakers can be helped in unlocking the economic value of connected-car data. Consumers who demonstrate safer driving behaviors are likely to see their auto rates fall.

Pundits observing the advances in telematics have also noted its supportive effect for UBI, since until recently it hasn't been practical for automakers to connect customers' driving data to multiple insurers. An exchange can take away such operational hurdles, make the free flow of information more feasible, and use collaboration to amplify the innovation, bringing rewards for all involved.

(Best's Review columnist Scott G. Stephenson is chief executive officer of Verisk Analytics. He can be reached at insight@bestreview.com.)


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