FYI...

Telematics and Predictive Risk Analysis
by Alva H. Wright and Jeffrey D. King on Jul. 21, 2009, a Telematics Weekly exclusive

By def­i­n­i­tion, insur­ance is a risk averse indus­try. They spend sig­nif­i­cant resources har­vest­ing data, fine-tuning algo­rithms and adjust­ing sta­tis­ti­cal method­olo­gies to limit their risk as they estab­lish pre­mi­ums. The more data they have to work with the more accu­rate the pre­dic­tive risk analy­sis.

Last month, Lib­erty Mutual?—?in part­ner­ship with GE?—?released OnBoard Advi­sor, an after­mar­ket telem­at­ics ser­vice. The OnBoard Advi­sor records fuel con­sump­tion, engine run time, miles dri­ven, speed, loca­tion and dri­ving behav­ior. This offer­ing will pro­vide invalu­able and pre­vi­ously unat­tain­able data for improved risk assess­ment.

How­ever, telem­at­ics is out­side the core com­pe­tency of the insur­ance indus­try. The irony is unavoid­able: to off­set risk, the insur­ance com­pany must take on risk. But Lib­erty Mutual has found a way to lessen their uncer­tainty with a suit­able part­ner.

GE, WebTech Wire­less, Qual­comm and Trim­ble all have the expe­ri­ence, resources and infra­struc­ture to absorb the addi­tional lia­bil­i­ties of such an enter­prise. Accord­ing to Mike Slat­tery, Archi­tect of OnBoard Advi­sor, Lib­erty Mutual selected GE based on the abil­ity to pro­vide the hard­ware, inte­gra­tion, war­ranty, ser­vic­ing, sales assis­tance and car­rier rela­tions at the price points pre­vi­ously estab­lished. In turn, GE gains long-term con­tracts from each cus­tomer, and the unique oppor­tu­nity to estab­lish them­selves as the leader in after­mar­ket fleet track­ing prod­ucts and ser­vices.

How­ever in the con­sumer after­mar­ket, telem­at­ics’ suc­cess has been elu­sive?—?as tes­ti­fied by the 10 years of stag­na­tion expe­ri­enced by Pro­gres­sive Insurance’s Pay As You Drive prod­uct. As exem­pli­fied by Pro­gres­sive, con­sumer offer­ings require insureds to be respon­si­ble for their own device instal­la­tion in the hope of low­ered pre­mi­ums. But the met­rics acquired could also increase the insureds rates. As such, it is dif­fi­cult to con­vince insur­ance cus­tomers that the poten­tial ben­e­fits jus­tify the time and expense related to installing the device. Insur­ance com­pa­nies have yet to devise an eco­nomic model to remove this bur­den from adopt­ing cus­tomers.

For this rea­son, OEM telem­at­ics solu­tions hold the most promise in the con­sumer mar­ket. With­out con­sumer instal­la­tion incon­ve­nience, insur­ance com­pa­nies could access a trove of behav­ioral data to dra­mat­i­cally improve their pre­dic­tive risk analy­sis.

The poten­tial avail­abil­ity of OnStar has peaked inter­est from for­ward think­ing insur­ance com­pa­nies (such as All­State Insur­ance). OnStar is said to gen­er­ate rev­enue in excess of $1 bil­lion annu­ally. It has an estab­lished infra­struc­ture and sub­scriber base. Given Gen­eral Motor’s recent finan­cial dif­fi­culty and OnStar’s posi­tion out­side of their core busi­ness, GM has given real con­sid­er­a­tion to liq­ui­dat­ing this asset. As GM emerges from bank­ruptcy, the future of OnStar remains uncer­tain.

Under­stand­ing the tremen­dous value in data to insur­ance com­pa­nies, the real value of OnStar appears not to be as a telem­at­ics provider but as an infor­ma­tion aggre­ga­tor. With over 5 mil­lion sub­scribers, OnStar can pro­vide valu­able infor­ma­tion on dri­ving trends. If GM does not see this value in OnStar, which com­pany will take on the risk and demon­strate the vision to real­ize OnStar’s poten­tial?

Source: http://telematicsweekly.com/archives/telematics-and-predictive-risk-analysis-1606