Tomorrow’s

Telematics for
the Insurance
Industry

NORTH AMERICA
Introduction
The insurance industry’s adoption
of telematics-enabled capabilities
is still relatively small, with some
estimates putting policyholder
adoption rates at less than 5%.
But with these numbers expected
to grow at a rapid pace and a
broad range of available benefits,
it leaves open an opportunity for
automotive insurers of all sizes to
differentiate themselves in the
space.
Insurers who still think of
telematics only in terms of
usage-based insurance (UBI) or
risk assessment are thinking too
narrowly. Telematics is a tool that
can be applied in a number of
places across the insurance value
chain, and leading insurers are cases for telematics that are
already seeing benefits from beginning to emerge. It is based
strategic applications. As a sector on conversations with insurer
that faces intense competitive CIOs and industry experts, as well
and cost-cutting pressures, insur- as our own direct experience.
ers can position themselves for
success with telematics by think-
ing more broadly about how they
can apply telematics, and by
implementing telematics pro-
grams now - garnering early
experience and getting a leg up
on the competition.
This white paper examines the
current state of telematics adop-
tion in the insurance industry,
considers factors that will contrib-
ute to the growth of telematics in
the future, and discusses new use
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Current State of Telematics
Telematics capabilities—that is,
technology that records person-
alized data for transmission, in
this case for automobiles—con-
tinue to be a popular topic
among property/casualty insur-
ers, who are seeking to leverage
the data telematics can provide
to price risk more accurately,
design better products, offer
discounts to their policyholders,
and even prevent losses by pro-
moting safer customer behavior.
When insurers speak of telemat-
ics in the auto insurance sector,
most often they’re referring to
UBI, an approach that typically
offers drivers discounts and
rewards for good driving behav-
ior. While most insurers and
much industry discussion treat
the two as synonymous, insurers
should be aware that UBI is only
one insurance application of
telematics for auto policyholders.
While the adoption rate of
telematics and UBI is still modest,
interest continues to grow - the
number of insurers offering UBI
doubled from 2010 to 2015. The
majority of the top 25 insurers
offer UBI programs. The current
industry leader is Progressive’s
Snapshot program, with three
million participants as of Septem-
ber 2015.
A recent study by research and
advisory firm Novarica indicates
that across all P&C insurers,
telematics is one of the larger
areas of IoT investment. Since this
segment includes carriers who
don’t sell personal or commercial
auto, it’s indicative of the extent
to which auto insurers have
embraced the technology at a
faster pace than insurers at large.
Current Uses of Telematics –
UBI and Underwriting
Telematics-enabled capabilities in
the auto insurance industry are
most often used to drive UBI
programs, typically policyholder
incentives wherein the driver can
receive a discount on his or her
2

insurance for regular good driv-
ing behavior. “Good driving
behavior” is usually represented
by a “driver score” which is calcu-
lated by an algorithm from the
data a telematics device relays to
the insurer. These data sets can
include miles driven, location
driven, average speed, level of
distraction, and sometimes ma-
neuvering information like accel-
eration/deceleration, hard brak-
ing and cornering.
UBI programs based on the
discount model have been pop-
ping up in the market in the last
5-10 years. Most of the programs
available in the market focus on
personal auto with a few focusing
on commercial auto lines and the
fleets they underwrite.
On the personal lines side, insur-
ers are also using UBI programs
to price risk more accurately, to
coach an individual to become a
safer driver (thereby decreasing
the risk of a potential claim), and
to increase interactions with their
policyholders to create loyalty
and increase retention.
For commercial lines, telematics
is used to monitor vehicle and
driver habits to reduce idling,
improve safety, save fuel, and
better manage risk.
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In a few cases, telematics has
actually been used for a more
discrete usage-based automotive
insurance product called “pay per
mile” where policyholders are
charged only for the miles they
drive. Novarica’s Martina Conlon
says, “The adoption of
pay-per-mile auto insurance
products may not be right for all
insurers, but it demonstrates the
opportunity telematics provides
for insurers to rethink their offer-
ing from the ground up, and how
it can be used to appeal to
entirely new demographics.
Carrier Experiences with UBI
UBI programs, and telematics-en-
abled capabilities more broadly,
offer a number of benefits to
“The biggest value of our UBI initiative hasn’t
been about cost reduction or losses, but the
increased loyalty of our best customers.”
insurers, including better under- UBI programs and are planning to
standings of driver behavior, continue them; some are consid-
more accurate risk assessment, ering strategic expansions of
tailored pricing, diversified or telematics capabilities, such as
custom product offerings, using telematics data to enhance
increased retention, better the claims process.
understanding of customer char-
acteristics, and expanded mar- One CIO interviewed said, “The
keting opportunities. biggest value of our UBI initiative
hasn’t been about cost reduction
In conversations with property/- or losses, but the increased loyal-
casualty CIOs, they are generally ty from our best customers.”
seeing positive results with their
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Future Growth of Telematics
While telematics programs are
still a relatively small portion of
the total US auto insurance
market, it’s an area that will con-
tinue to grow, as the number of
telematics-enabled vehicles and
telematics-based policy offerings
increase.
Research indicates that by the
year 2020 there may be as many
as 250 million connected vehicles
on the road. Moreover, many
expect market penetration for
UBI to be above 10% by 2020.
Simple, entry-level telematics
initiatives also don’t require
installed devices— for example,
applications created by Octo
allow for data to be recorded
from the policyholder’s phone.
To some extent, lower-than-ex-
pected UBI adoption rates may
reflect a perception that starting
up a UBI program—or even
enrolling in one as a consum-
er—is inconvenient. As Chuck
Ruzicka, Novarica Vice President
of Research and Consulting, has
remarked, “The reality is that UBI
schemes require some effort on
the part of consumers to imple-
ment. As cars become more
connected, and smart-
phone-based telematics apps
improve, it will be interesting to
see if uptake of UBI increases
once it’s as easy as tapping a
button on your car’s screen.”
Overcoming Other Barriers
to Telematics Growth
Novarica’s research in telematics
and UBI has found that when
insurers are not yet sure whether
to invest in UBI, four key factors
are involved:
Privacy concerns. Consumers
may be reluctant to give away
data that can personally identify
them although many are more
comfortable sharing less person-
alized or “public record” data like
demographic information and
driving history.
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Transparency. Insurers like to
keep their rating algorithms
proprietary, but consumers who
don’t understand how telematics
data causes their rates to go up
or down may grow frustrated with
the program and lose trust with
their insurers.
Standards. Lack of current stan-
dards (like ACORD and ISO)
mean that carriers have to pilot
programs to determine which
data are most useful. As these
become more standardized,
insurers can focus on value-adds
and effective support for their UBI
programs.
Marketing. Since most UBI pro-
grams provide discounts, carriers’
marketing efforts tend to elide
the full range of benefits telemat-
ics programs can provide, and
can miss policyholders who
prefer privacy to price-sensitivity.
According to Novarica, insurers
can address these concerns by
realigning telematics and UBI as
programs that can give consum-
ers useful information about their
own habits, and by making clear
what data they will use and how
they will use it to provide these
assessments.
Be clear about what data are
being used, and how. Consum-
ers, especially millennials,
increasingly like to know how
their data will be used before
they part with it. Insurers should
be transparent about what data
their telematics program will
collect, how it will be safeguard-
ed, and how the carrier will use it.
Provide incentives beyond
premium discounts. Premium
breaks are an incentive to con-
sumers, but make the exchange
of data into an obvious transac-
tion. Insurers should lead with
value-added services, make
customers’ data available to
them, and engage them in a
conversation about how they can
be safer.
Telematics Beyond UBI
Novarica recommends that given
the potential for future growth of
telematics, insurers should be
thinking more broadly about
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the many ways telematics capa-
bilities can be applied.
Insurers are already experiment-
ing in some of these areas.
Beyond what’s stated here,
telematics is a flexible and pow-
erful tool, and insurers should
challenge themselves to apply it
in novel ways.
Big Data Opportunities
Telematics represents an enor-
mous trove of data to insurers
about where, when, and how
their policyholders drive. Insurers
are already leveraging that data
for UBI and underwriting, but
there is other potential value to
be gained. These data can help
insurers understand what loca-
tions and behaviors are high risk,
what makes them high risk, or
how they can price that risk
appropriately or prevent it alto-
gether.
Good vendor partners can help
insurers make better decisions
with aggregate data combined
from all of their in-flight insur-
ance applications. Octo Telemat-
ics, for example, has created the
world’s largest insurance
telematics database, comprising
155 billion miles of driving data
and 397,000 crashes (as of March
31, 2017).
Telematics will only become
more common, and insurers
should position themselves now
to make sure they have access to
that data. As Novarica’s Jeff
Goldberg notes, “New channels
of information are a tremendous
resource for insurers, both for
underwriting and claims man-
agement, and insurers who don’t
leverage them will be at a disad-
vantage.”
Improving the Claims
Process
Telematics data can also touch
the claims cycle in a number of
places. In addition to providing
crash notification for First Notice
of Loss (FNOL), which can also
accelerate the claims process
and resolution, onboard sensors
can estimate location and severi-
ty of damage from a crash, lead-
ing to improvements in claims
reporting and investigations.
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Combined with machine learning
capabilities, telematics data can
help insurers better estimate
claims severity for appropriate
reserving.
With more claims data more
easily available, telematics also
has potential to improve custom-
er experience by partially or
completely automating the
claims process. As one insurer
CIO put it, “We want to find
opportunities to be more auto-
mated when the customer wants
it. If they want high touch/high
service we give it. If they want it
all automated, then that’s what
we need to provide.”
According to Novarica’s research,
telematics applications for claims
aren’t yet mainstream, although
insurers are aware of the poten-
tial and are considering strategic
planning for these applications.
Innovative insurers will move
quickly in this area, better retain-
ing current customers and win-
ning new prospects over less
technically advanced competi-
tors.
Fleet Management and Op-
timization
Commercial lines insurers can
also use telematics to add real
value for their commercial cus-
tomers by offering fleet manage-
ment tools and features like
predictive maintenance, stolen
vehicle recovery, crash notifica-
tion, automated assistance, usage
and performance statistics, route
efficiency, and driver analytics.
Octo telematics offers insurers
these capabilities through their
Octo Fleet solution.
Many companies are concerned
about how autonomous vehicles
will impact the future of vehicles
and insurance. In this area,
Novarica’s Jeff Goldberg says,
“One area that will actually
increase in importance as more
and more self-driving cars and
trucks take to the road is fleet
management. Being able to
monitor, optimize, and properly
insure a group of vehicles will
grow in value, and investments
made into this area of telematics
will continue to prove critical.”
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Risk Prevention and Relationship Maintenance
Behavior Adjustment and
Risk Prevention
A natural extension of telematics
capabilities—which, in most UBI
programs, already assign drivers’
scores or categories based on
their performance—is to encour-
age drivers to improve their
driving scores by adopting better
driving practices.
Through gamification, insurers
can create a compelling motiva-
tion for drivers to improve. For
example, Octo offers the Glimpse
app, which scores drivers, awards
them badges based on their
performance, gives personalized
tips for improving their driving,
and encourages them to com-
pete with their friends on social
media.
Government figures estimate that
over 400,000 people are injured
annually because of distracted
driving. “From a personal lines
perspective, there isn’t a segment
that hasn’t had an increase in
severity/frequency of accidents
due to distracted driving,” one
personal lines CIO commented.
In other words, there’s a lot of
opportunity for insurers to pre-
vent claims losses before they
happen by encouraging good
driving behavior.
Programs currently in place at
cutting-edge insurers indicate
that telematics-enabled initiatives
aimed at reducing distracted
driving can achieve great
results—one insurer found that
participants were 19% less likely
to have accidents and 25% less
likely to have traffic violations.
Octo Telematics has found even
larger gains—their data shows
that 40% of drivers that use feed-
back from a telematics program
become safer drivers, with driving
score improvements coming in
just five weeks after beginning a
telematics program.
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Carriers should look to leverage
existing UBI programs by expand-
ing them into driver-education
programs. In addition to the
goodwill they can generate (and
the tangible good they can do),
every claim that’s prevented is
one that never needs to be paid.
Transforming the Nature of
the Insurance Relationship
Using telematics-enabled capa-
bilities to improve driver behavior
is one way insurers can use new
tools to transform the nature of
their interactions with their poli-
cyholders. Telematics offers the
potential for a proactive, continu-
ous engagement with insureds,
which moves their relationship
with their insureds beyond simply
indemnifying risk. As one CIO This kind of engagement has the
noted, “More engagement potential to create deeper and
between the carrier and consum- more lasting relationships
er leads to better retention.” between insurer and insured—a
big plus for a line like auto insur-
To quote Novarica’s Jeff Gold- ance, where customers are typi-
berg, “Most policyholders only cally driven by price. As a differ-
interact with their carriers during ent CIO put it, “It creates a better
renewal or when they have a relationship between the insurer
claim. Those are both primarily and the insured—perceived as
negative experiences. Proactive being interested in helping them
engagement is a positive interac- avoid losses, rather than being
tion that can re-frame the insurer overbearing or avoiding having to
as an entity that cares about the pay.”
well-being of their clients.”
“Being able to monitor, optimize, and
properly insure a group of vehicles will
grow in value, and investments made into
this area of telematics will continue to
prove critical.”
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Concluding Thoughts
Telematics adoption is still in the
early stages, but will become more
common, as the number of
telematics-enabled cars on the
road increases. As more carriers
offer telematics-based policies and
discount programs, insurers who
don’t will come under increasing
pressure to develop competing
products and will suffer from
adverse selection. Nevertheless,
insurers can turn this pressure into
an opportunity by beginning to
gain experience with telematics
now, and expanding their ideas of
what telematics can do in other
areas.
Getting this experience sooner
rather than later can only help.
While the financial costs associated
with piloting a telematics program
can be modest, it also involves
aligning internal processes and
departments as the program rolls
out, and updating marketing and
sales materials to communicate
the value to policyholders.
Insurers have different approaches
to investing in telematics initiatives.
Some of the largest insurers will
choose to build their own telemat-
ics projects and some small insur-
ers will look to third-party data
aggregators to get drivers scores
and other limited telematics
insight. But most insurers will fit in
the middle, working with a vendor
who will bring technology, exper-
tise, and established data to the
process.
Telematics, used mostly for UBI and
risk assessment today, will eventu-
ally be a reality of all car ownership
and insurance relationships,
improving experience and com-
munication across the entire
process. It will improve risk estima-
tion and allow for competitive
pricing, offer new product oppor-
tunities, help positively influence
driver behavior, and make the
claims process efficient, transpar-
ent and cost effective. Most impor-
tantly, telematics offers insurers
the opportunity to re-imagine their
relationships with policyholders for
the long term.
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About Octo

Octo is the number one global provider of telematics and data analytics solutions for the auto insurance
industry. Founded in 2002, Octo pioneered the insurance telematics industry. Today, Octo is the largest and
most experienced insurance telematics company in the world, transforming auto insurance through behav-
ioral, contextual and driving analytics for more than 60 insurance partners. Octo has more than 4.9 million
connected users and the largest global database of telematics data, with over 155 billion miles of driving data
collected and 397,000 crashes and insurance events analyzed. Octo applies proprietary algorithms to this
market-leading database to deliver powerful new insights into driver risk, informing solutions that benefit both
auto insurance companies and policyholders. The company is headquartered in London, with offices in
Boston, Rome, Stuttgart, Madrid, and Sao Paulo.

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NORTH AMERICA

www.octousa.com