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Telematics technology – a new era for motor insurance

On August 12, 2024, 10:05 AM

Imagine driving down a busy street in Accra, knowing that your insurance policy is customized just for you based on your driving habits among other peculiar traits. This is not so futuristic anymore considering the fact that our friends from Nairobi (Kenya) and South Africa have already made it a reality thanks to the power of Data analytics and telematics in Motor insurance.

What is telematics in insurance?

Telematics involves using devices installed in vehicles to send, receive and store data on the driving behaviours of our motor clients. This data includes speed, braking patterns, mileage and even the time of day the vehicle is used. By analysing this data, insurers can offer personalized services, especially in terms of premium based on actual driving habits rather than the generalized risk factors.

Risk assessment: The real-time information provided by telematics helps insurers to determine which drivers are high-risk or low-risk. Consequently, Insurers can adjust premiums based on actual driving behaviour rather than relying solely on historical data or general demographics as we currently do in our market.

Driver coaching: Telematics data provides detailed feedback on driving behaviour, enabling insurers or fleet managers to offer personalized coaching to drivers. For instance, if a driver frequently exhibits hard braking or rapid acceleration, they can receive tips and training on how to drive more smoothly through a phone application or a call. This does not only improve safety but also enhances fuel efficiency and reduces wear and tear on customer vehicles. Continuous feedback can cultivate safer driving habits, reducing the likelihood of accidents and subsequent insurance claims.

Vehicle maintenance: Some telematics devices can monitor various aspects of a vehicle’s health, such as engine performance and tyre pressure. Through data analytics, the telematics data systems can predict when a vehicle requires maintenance or is likely to experience a breakdown. This flow of information to customers will give them value for money demystifying the frivolous saying that insurance is free money. Regular maintenance prompted by telematics alerts can extend the vehicle’s lifespan through timely repairs and ensure it operates at peak efficiency and further reduce claims that may be as a result of this factor.

Performance tracking: In furtherance to giving individual customers value for their money, businesses managing a fleet of vehicles could also get valuable insights into the overall performance and productivity of their fleet. Data on vehicle usage, route efficiency, fuel consumption, and driver behaviour can be analysed through identification of patterns and trends, such as; which routes are most efficient or which drivers are the most productive. This information may help in making data-driven decisions to improve operational efficiency, reduce costs and enhance customer satisfaction.

Benefits of telematics to the insurance company

Fraud detection: The Commissioner of the insurance regulator, National Insurance Commission in 2021 indicated that about 25 per cent of insurance claims are fraudulent. Telematics data on the other hand provides real-time objective information about driving behaviour and accident circumstances, making it more challenging for fraudulent claims to go undetected.

Underwriting profit: Telematics data allows insurers to assess individual risk profiles better, leading to more accurate pricing of premiums reducing the risk of under-pricing policies for high-risk drivers and overpricing for low-risk drivers. With more accurate risk assessment and pricing, insurers can improve their underwriting profit margins, leading to a healthier profit and loss (P&L) statement.

Efficient claims processing: In the event of an accident, telematics can provide precise details about the incident, such as the speed at the time of collision, location, and driving behaviour leading up to the accident. This can expedite the claims processes and help in accurately determining fault leading to a reduction in the time and resources spent on investigations.

New revenue models: Telematics enables the development of various new revenue models such as Usage-Based Insurance (UBI), Pay-How-You-Drive (PHYD) and Pay-As-You-Drive (PAYD) where premiums are based on actual driving behaviour and patterns rather than estimated risk. This can attract new customers who prefer a fairer pricing model, leading to growth in the customer base as some clients may be heavier road users than others. Hence the risk exposure of various drivers can be scrutinized further than the traditional private, corporate and commercial use.

Social impact: According to the Ghana Medical Journal, 72 persons out of every 100,000 population, suffered from grievous bodily injury and close to 8 of the same population died from Road Traffic Accidents (RTAs) over the past decade as at 2020. By monitoring and encouraging safer driving behaviours, telematics can help reduce the frequency and severity of accidents protecting human lives and properties.

Environmental impact: By encouraging more efficient driving and better vehicle maintenance, telematics can contribute to reducing fuel consumption and emissions, promoting a greener environment.

Benefits of telematics to car owners

Lower premiums and discounts: Car owners who exhibit safe driving behaviours, as monitored by a data analytics team are often rewarded with lower insurance premiums and discounts. This is because insurers can accurately assess and price the risk based on real-time driving data of these customers.

Auto notification and first response: In the event of an accident, telematics devices can automatically notify emergency services, insurers and designated contacts ensuring timely assistance and potentially faster claim processing for customers reducing the paperwork time for the customer. This can also quicken medical assistance which is crucial for reducing the severity of injuries and potentially saving lives.

Effective vehicle cost management: With the rising rate of fuel prices in this country, customers will be happy to receive real-time driving practices and tips to save fuel based on their driving habits that affect their consumption. Especially when they are telematics feedbacks such as rapid acceleration, hard braking and excessive idling. As mentioned earlier, telematics devices monitor the health of the vehicle and can alert owners of maintenance needs before they become serious problems. This proactive approach reduces the likelihood of costly repairs and extends the vehicle’s lifespan.

Good driving rewards: Many telematics programs include reward systems for safe driving which range from cash back and gift cards and this does not only save money but also encourages continued safe driving habits.

Flexible premiums: With detailed insights into driving behaviour, insurers can adjust premiums in real-time or on a periodic basis, reflecting the actual risk and usage patterns of the policyholder to ensure fair pricing and make insurance more affordable for safe drivers. This can be particularly beneficial for a low-mileage driver who may see some significant savings compared to traditional motor insurance policies.

Customised coverage: Telematics allows insurers to offer highly personalised policies based on individuals’ driving habits with tailored coverage options that match their specific needs and risk profiles. This approach leads to fairer pricing for policyholders, rewarding safe drivers with lower premiums and incentivizing safer driving practices.

Telematics in Insurance, Africa

A study published by Cambridge Analytica indicates that 73 per cent of policyholders in Kenya are willing to pay premiums adapted to their real claim potential. Telematics in motor insurance seems to be the best alternative, it will give opportunity for good drivers to enjoy lower premiums, creating a fairer system for everyone.

Other surveys have also proven that price is the reason why customers switch with 59% of motor insurance clients hovering from one insurer to another in search of value for their money as well as better services. The introduction of telematics in some parts of Africa has proven to increase customer retention by 18-20% through regular engagement and driving feedback.

For in Kenya, one notable example is AiCare, which provides a telematics solution that collects data on driving behaviour through a mobile app. This data is then analysed to offer customized insurance policies where good driver enjoys the car owner benefits of telematic in insurance.

Discovery Insure, a South African company: offer a product called Vitality Drive which uses a small device installed in the vehicle to track driving behaviour. Safe drivers earn rewards like cashback on fuel and discounted premiums encouraging safer driving as well as helping drivers save money.

With Motor having almost 40 per cent of the insurance market and the rise of its claims, Telematics could champion the initiative to effectively reduce claims, increase revenue in the sector, make insurance more attractive and potentially change the 2 per cent market penetration narrative. .

>>The writer is holder of Diploma in insurance from Ghana Insurance College, ALX & Google Certified Professional Data Analyst and a member of the Chartered Insurance Institute Ghana. He has almost a decade experience within the Ghanaian corporate industry with the greater part in insurance. Daniel is currently the Transformation & Partnerships Manager at iRisk Management Limited (Insurance Consultants). He can be reached via 0546109949 or 0200109758 and or duahdanielsarkodie@gmail.com

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Story By Daniel Sarkodie Duah