Identifying Opportunities in Market Trends
Insurers are under constant pressure to maintain profitability despite the ongoing uncertainty in an increasingly crowded and volatile commercial insurance market. The upward market trend and robust growth of telematics insurance point to tremendous possibilities for commercial lines insurers who gain greater value from data-driven insights into underwriting factors, help identify and implement strategies for mitigating risk, and establish the groundwork for more efficient loss prevention programs.
“The rise in usage-based insurance, digital distribution channels, and other disruptors are shaking up the industry. Widespread data availability and advanced analytical techniques are enabling new market entrants to absorb risk that was once the exclusive territory of insurers. Larger and more efficient capital providers entering the industry are siphoning off premiums that ordinarily flowed to insurers. To stay relevant, traditional insurers need to shed their conservative orientation and cultivate a culture of innovation.”¹ – EY
A study conducted by Markets and Markets forecasts that the commercial vehicle telematics Compound Annual Growth Rate will reach 20.3 percent between by 2022. The current market is valued at over $7.31 billion and will rise to $18.43 billion by 2022.²
Additionally, a report by Bobit Business Media, publisher of Heavy Duty Trucking magazine, showed telematics adoption rates by fleets ranging from 57 percent in the West to 38 percent in the Midwest, as shown in the figure below. Most respondents to the report said that the use of telematics had benefitted their fleet overall, and most also felt that the benefits were better than they expected at the time they implemented the technology.³
From the insurer’s perspective, the availability of richer, more complete information on commercial vehicles and drivers makes it possible to develop custom policies and programs for commercial fleets including quicker claims resolution. Safe drivers and responsible operations can be rewarded. Risky drivers can be retrained or, if not responsive to training, removed from behind the wheel—before they cause an incident or loss. Risk managers have a depth of data to draw on to help develop policies and set pricing.
In this lively period of transformative change, insurance companies have a tremendous opportunity to go beyond making cautious incremental changes to existing legacy products. Instead, adopting the latest digital solutions geared to customer-centric innovation—enabled by data-driven insights—can re-energize programs, fulfill demanding customer requirements, and establish a stable road map to continuing market success.
Growth Opportunities in the Commercial Telematics Market
As commercial insurance telematics continues to dramatically reshape the insurance sector by delivering profitable growth through unlocking the opportunities that exist within an insurers existing customer base and new market segments, it is also clear that commercial fleet managers no longer view telematics as a big brother technology. Fleet operators now shop for insurance with telematics capabilities. Once fleet operators do opt for a telematics-based insurance solution, insurers tend to have more engagement with the policyholder because of the ongoing commitment to hardware and training. Commercial insurance telematics providers can now expect seven or more years of commitment once a policy is written. Insurance carriers offering telematics gain an opportunity to attract and retain the lower-risk fleet operators by becoming first-to-market leaders. Carriers slow to adopt a telematics program can expect to be left with higher-risk operators. The greater value of commercial insurance telematics, however, is the accrued data that leads to a fuller picture of driving behaviors, risk factors, and operational hazards, all of which can help more accurately price policy premiums to improve profitability.
“Harnessing large volumes of data from real-time sources can help insurers develop new products and refine pricing strategies. When combined with a robust operating strategy, advanced analytics can significantly increase underwriting profitability and provide a valuable market differentiator.”⁴ – EY
As more insurance organizations and fleet operators embrace the benefits of commercial UBI and telematics, the abundance of data and accumulating intelligence on operational costs and risk management will continue to grow, resulting in policy improvements and greater safety and efficiency in fleet operations.
The Key Benefits to Commercial Insurers Include:
- Encouraging safer driving practices: Commercial drivers demonstrate safer behaviors in telematics-equipped vehicles and can be coached through real-time feedback to avoid risky behaviors and unsafe vehicle operation.
- Providing greater visibility and actionable data to insurance processes: Risk management and underwriting practices become more effective when accurate data about vehicle operations and driver performance can be readily analyzed and interpreted.
- Reducing the number of claims: Insurers benefit with a clear reduction in claims, which ties directly to safer driving practices and improved maintenance of fleet vehicles.
- Minimizing fraudulent claims: Data collected during vehicle operations can pinpoint fraudulent claims and reduce losses in this area.
- Improving record keeping, logistics, and maintenance for operators: Operators gain deeper insights into the use of fleet vehicles with the availability of operational data, resulting in better driver selection, improved route planning, enhanced maintenance programs, lower incidence of uninsured losses, and more efficient use of resources.
A less tangible benefit, but equally important, is greater peace of mind for owners and operators of fleets. Knowing where each vehicle is at any moment, who the drivers are and how they are driving, what the current condition of each vehicle is—all these factors lead to a better understanding of the overall dynamics of the operation. When presenting the benefits of this technology to fleet customers, emphasizing peace of mind as an additional business value can help guide the discussion.
The Cost of Ignoring in an Industry Ripe for Disruption
The Cost of Ignoring (COI) represents a means to calculate lost savings that occur from a failure to adopt processes or technologies that have been shown to enhance operational efficiency. As with any commercial insurance telematics competitive assessment and ROI calculations, COI is intended to identify ways to increase profitability, but it does so by indicating areas where costs can be cut and greater efficiency can be achieved. In the current commercial lines insurance environment, COI can be a useful tool to find ways to increase the overall bottom line, rather than trying to drive further growth on the top line. In other words, failing to invest in and improve operating efficiency results in higher costs (or lost savings).
A COI analysis can be helpful to commercial vehicle fleet managers faced with stagnant growth. Looking for ways to implement cost reductions through targeted efficiency improvements can enhance profitability even in markets where conditions do not favor strong growth.
Insurance telematics delivers a wealth of data and the opportunity to apply analytics that can highlight the best areas to implement cost reductions, as well as those areas in which processes and operations can benefit from greater efficiency.