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Financial Solutions
24 Jul 2018

Telematics – is the digital passenger really any good?

The supposed revolution in the insurance industry and what is really behind it

Pay-as-you-drive rates are currently the next big thing for insurance companies. Everyone is trying to jump on the bandwagon. As a department head at Itzehoer Versicherungen, I know how to realistically classify this issue, because we were one of the first insurance companies in Germany to deal intensively with it. In my blog post, I reveal what we learned about technology, data protection, loss claims, processes and customer loyalty in our research project.

Let’s quickly digress: telematics rates, which insurance companies have been offering to certain groups of motorists for around four years, have now become a trend. Each customer can influence their own premiums with their driving. This goes along with the trend of customization. Their driving, i.e. speed, acceleration, braking behavior, trip distances and rapid or anticipatory maneuvering, serve as the basis for dynamic pricing. Careful drivers pay less, and the heavy-footed drivers have to pay up.

This attracts the attention of bargain hunters. Because 90 percent of Germans consider themselves to be above-average drivers, as shown by surveys, and therefore hope for savings. With the telematics rates, some insurance companies can save a few policyholders up to 40 percent on their premiums. So it is no wonder that the 15 insurance companies and more that offer telematics rates are seeing increasing acceptance from their customers. But we are still very far from the broad market coverage seen in Italy. There is skepticism not only from policyholders, who fear digital monitoring, but also due to some technical pitfalls.

Pilot project launched

My company, Itzehoer Versicherungen, is one of the 20 largest motor insurers. Germans have insured almost one million vehicles with us. And so we got involved in telematics. We wanted to be prepared for when the issue would gain momentum. And also so that third parties would not get exclusive access to the valuable data of our customers – cue data sovereignty. And so we launched a research project in 2014 in order to gather our own experiences. We wanted to reinforce customer loyalty by making insurance perceptible. An insurance customer will only take action with their insurance when they get the annual bill and in contact in case of a claim. And these times are usually not positive and are emotional. In the project, we therefore concentrated on communication with the customer in addition to claim management.

What are the technical possibilities?

There are various technical solutions available for the logging of driving data: fixed installation of a device, OBD2 interface, plug in the cigarette lighter or mobile app. Hardly any drivers would allow an insurance company to install something in their own car. The technical obstacle for many vehicle owners with OBD2 is insurmountable. And with an app solution, every driver of the car must have this installed on the mobile, which is difficult to track. For this reason, we chose an uncomplicated plug in the cigarette lighter. A technical amateur can manage this.

Total monitoring? Dead loss

Transparent customers, full movement profile… apparently a horror scenario for data protectionists. I can reassure you. At Itzehoer Versicherungen, an external service provider has logged the data and stored it on protected servers.  The principle of data economy was observed. Only in the event of a claim did we have access to the necessary data points. These were: GPS coordinates, so that we could send the police and ambulances in case of an accident.

What does not work?

The treachery is in the technology. If the software is configured so sensitively that even a minor fender bender is detected, then every bump on the curb will turn in to an emergency. And if the customer is called because of this, this can be quite annoying. But if you do not log minor damage, the corresponding data mass will be lacking to identify linkages.  Because statistically speaking, drivers damage their own car only every seven years. And you can only derive conclusive findings from sufficient data quantities of damage figures.

And the costs are still too high. New and complex processes are also required: External hardware which has to be sent and returned by post; a telephone customer service for handling with high staff requirements are points to note. All of this is still not a high-demand product, but one that has to be actively “sold” to the customer. It is also never guaranteed whether the customer will really always plug in the device or whether the mobile number is real. All factors that make data logging and emergency assistance difficult.

Ideal for customer loyalty

In order to anticipate this, from the perspective of customer loyalty, the project was a great success. More than 70 percent of our customers downloaded the associated app. Of those, 60 percent where still active users even after six months. The much-described demand for fairness is genuinely moving. There are much more precise data available. Instead of being put in a regional class in relation to the customer’s residence, the places where the car is actually driven are used. Most customers find this fairer. On average, our motorists we able to obtain a saving of 11 percent as a result.

The pilot project provided us with important results for marketing, customer loyalty, pricing and claim management. But there are still some problems to do with generating data cost-effectively. For this reason, our project ended as scheduled. We now have a market-ready solution in the drawer, which we can take out again at any time, once the technical problems are resolved.


Christoph Meurer,
Head of Department Loss/Accident product area,
Itzehoer Versicherungen

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