|
Advances in technology, particularly centered around business intelligence and global positioning systems, are set to radically alter the insurance industry over the next five to 10 years, predicts a report from the TowerGroup, a Needham, Mass. research firm that specializes in the financial services industry.
The insurance industry has managed to plod along without the major upheavals seen in many other sectors, but that is about to end, says TowerGroup Research Director David West. Several technologies are coming together that will result in dramatic improvements to safety in vehicles as well as enable insurance companies to offer a wide range of new pricing plans based on distances driven, time of day, and individual driving habits.
The direct result is that companies that seize the opportunity to innovate first will have a distinct advantage to survive and lead as the industry goes through the predicted upheaval. "The timing is right for it," says West. "I don't think this [the major changes forecasted] could have happened 10 years ago - the technology wasn't ready. But what we're seeing now is a convergence of several important technologies and behind those technologies is information - information to make better decisions on risk and price plans accordingly."
In his report, The Digital Chauffeur: Real-World Principles of Innovation for the Insurance Industry, West notes the evolution taking place in such areas as passenger air bags. Early air bags required inflation forces much stronger than those of modern air bags and produced unexpected consequences such as injuring passengers who sat too close to the air bag. To better learn how air bags performed in crashes, vehicle manufacturers such as General Motors and Ford Motor, began installing event data recorders in vehicles to capture information related to the seconds immediately before and after an air bag deployment.
By combining the two technologies, vehicle manufacturers were able to reduce the number of fatalities per million vehicles from about .35 per million in 1991 to practically zero from 2004 through 2007.
Now a number of insurance carriers are making use of that same event data recorder (EDR) information. The practice has raised privacy concerns, and some states, such as California, have enacted legislation requiring manufacturers to disclose to customers whether EDRs are installed in their vehicles. The National Highway Traffic Safety Administration issued a rule in August 2006 that will require all automakers to tell new car buyers if an EDR has been installed, beginning with model year 2011 cars.
West says one insurance carrier he spoke with, which could not be named, used EDR information to reconstruct an accident in which a driver claimed to have hit a deer. The change in velocity recorded by the EDR clearly showed a collision with a fixed object, not a deer. It was later determined the driver hit a concrete barrier.
The direct result is that through this innovation insurance carriers have been able to better reconstruct events that took place at an accident and, in the process, better determine appropriate damages and deter fraud. As vehicle manufacturers implement further safety systems, such as systems to detect if a vehicle is approaching another vehicle too quickly and is in danger of being involved in a crash, more information will be at their disposal.
An equally important innovation is taking place in the area of pay as you drive (PAYD) insurance. By combining global positioning systems, along with cellular technologies, insurance companies are beginning to offer policies where drivers are charged based on the amount they drive, as well as the time of day and how well they drive. Progressive Insurance introduced the concept in the U.S. about 10 years ago, but with limited success.
The Progressive system was called Autograph, and combined GPS technology with cellular systems to record and transmit driving information. However, the technology was still relatively new and expensive to purchase and install. They were not being installed directly by automakers, so insurance policy holders had to pay for the installation themselves. The idea was ahead of its time, says West, but since then more cost effective systems have been developed.
One insurer, Norwich Union, has launched what appears to be a successful version of PAYD insurance in Britain. Powering the system is a large Teradata data warehouse and business intelligence systems. Through an on-board GPS system that is about the size of a compact disc player and cellular technology, the carrier can now track an individual's driving patterns, from how many miles they drive in a day, to whether they drive on city streets, major highways or rural roads, what time of day they drive, and how fast. In turn, the carrier is able to greatly reduce the risk associated with pricing a policy and offer discounts to qualifying customers. In some cases, Norwich says customers have changed their driving patterns to qualify for lower pricing—a win for both sides.
In the U.S., Progressive Insurance relaunched its pay as you drive program in Minnesota in 2004 under the name TripSense, and expanded the program in 2007 into Oregon and Michigan. Other carriers such as Safeco are offering other innovations, such as Teensurance, which allows parents to track their teen's driving. According to Safeco's Web site, the GPS-based system allows parents to set "safe driving zones", essentially a perimeter in which the teen is allowed to drive. If a vehicle goes outside the perimeter, the parent is notified by phone or text message.
"A lot of the innovation in the years ahead will be driven by competition," says West. "If you want to capture business from your competitor, you're going to have to be more innovative, you're going to have to consider what your customers want, be able to implement systems to offer it, then price it accordingly."
TowerGroup estimates the global insurance industry spent $1 billion on development projects for information management in 2006. By 2010, TowerGroup forecasts spending will increase to $1.25 billion and in the years thereafter will increase significantly as the industry attempts to capture the value of new sources of information.
David West has made a portion of his report The Digital Chauffeur available to CIOZone readers.
Only registered users can write comments.
Please login or register. |
