Why the insurance industry is ready for a data revolution

Vicky Wills, senior director of engineering at Zego, explains why the insurance industry is ready for a data revolution.

Insurance is in many ways an antiquated industry that has seen little change in decades. One area where this is particularly evident is in the way that the sector prices policies when it comes to motor insurance.

As it stands, you could be the safest, most vigilant and most responsible driver on the road, but the sad reality is that this approach, while commendable, will have almost zero impact on the price you pay for insurance. In fact, thanks to auto-renewal, you’re just as likely to be rewarded with a price hike at the end of the year.

This is an unfair situation for consumers and it’s even worse for businesses with fleets of cars, for whom a small shift in the price of insurance can mean tens of thousands of pounds a year. Motor insurance shouldn’t work like this, and thanks to advancements in telematics and the way that we can consume data, it no longer has to.

As it stands today, when a customer chooses a traditional motor insurance policy and is provided with a quote, the price they are given will be based on broad generalisations made about their personal background as an approximate proxy for risk. This might include their age, their gender, their nationality, and there have even been examples of people being charged hundreds of pounds more for policies because of their name. If this kind of profiling took place in other financial sectors, there would be outcry, so why is insurance still operating with such an outdated model?

Well, up until now, there has been little innovation in the insurance sector and as a result, little alternative in the way that policies can be costed. But now, thanks to modern telematics, the industry finally has the ability to provide customers with an accurate and fair policy, based on their true risk on the road: how they really drive. Telematics works by monitoring and gathering vehicle location and activity data via GPS and today we can track speed, the number of hours spent in the vehicle, the times of the day that customers are driving, and even the routes they take. We also have the technology available to consume and process swathes of this data in real time.

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For any insurance companies willing to embrace technology, this paves the way for motor insurance policies priced according to actual driving performance, with quotes fluctuating each month based on the individual’s driving data.

Not only will this approach revolutionise the way that the insurance industry prices its policies, but it will make motor insurance work more like a credit score, financially incentivising drivers to take less risks and drive more safely. In time, the overall impact of this could be far fewer accidents on the road. For fleet operators, this model can have far-reaching benefits. As a starting point, they will only pay for the time that their vehicles are on the road covering miles. Secondly, if they can raise the standard of their drivers, these firms could potentially save huge amounts of money on insurance, which they can reinvest into other parts of the business.

The benefits of using live telematics data and insights do not end there either. The technology can also play an important role in the way that claims are managed. By using data collected following an accident, claims handlers will have access to an unbiased, factual account of the incident, enabling them to reach an informed decision quickly and fairly. The faster a claim is closed, the more cost savings for both the driver and insurer.

Despite the legacy challenges, we’re seeing the insurance sector begin to learn how to handle telematics data and apply it in pricing models. This is a truly novel and exciting development, which stands to benefit everyone.

Written by Vicky Wills, senior director of engineering, Zego

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