A look at how big data can empower motorists by
supporting fairer pricing and promoting inclusivity as a report
suggests groups of people could find themselves excluded from
insurance as providers gain a greater understanding of the risks of
The second report published by the Chartered Insurance Institute
in association with Cicero Group, on disruptive technology in financial services,
raises some important questions regarding the risk of social
exclusion as an outcome of big data insights.
The report suggests that as insurance providers gain a greater
understanding of the risks of individual customers through big
data, and start to deliver more personalised insurance cover,
groups of people could find themselves excluded from insurance. The
report's author states: "Some people may be identified as such high
risk to insurers that they are priced out of insurance altogether.
Big data could, in effect, create groups of 'uninsurable' people.
While in some cases this may be to do with modifiable behaviour,
like driving style, it could easily be due to factors that people
can't control, such as where they live, age, genetic conditions or
It's easy to see how these assumptions can be made, but from our
perspective as a leading telematics motor insurance provider with
more then three billion miles of driving data and associated claims
under our belts, we see how big data can empower motorists by
supporting fairer pricing and promoting inclusivity. This is
particularly true among young and new drivers, for whom the ability
to drive has a major bearing on social inclusion, job opportunities
We are all too well aware that the cost of motor insurance is a
major issue for young drivers. There's good reason. Young
motorists make up just 12% of licence holders, yet account for 25%
of road deaths; and one in five new drivers are involved in a crash
within six months of passing their test. As a consequence,
traditional insurance cover is priced to reflect this risk.
Add the fact that new drivers don't benefit from no claims
discounts, and it's little surprise that according to the last
Travel Trends survey, cost is the biggest
barrier to young people learning to drive.
On top of this, young drivers are being disproportionally hit by
recent governmental motor insurance price hikes. Insurance Premium
Tax has more than doubled in two years and, as it is a highly
regressive insurance tax, young people have seen substantial
increases. The recent dramatic change to the discount rate paid for
the largest claims (the Ogden rate) also especially penalises the
premiums in the young driver segment.
Benefits of telematics
Telematics-based insurance is based on actual rather than
assumed driving behaviour, so the basis of any risk pricing is much
fairer than traditional motor insurance. In this way, telematics
insurance puts every policyholder on a level playing field where
they are judged on how safely they choose to drive, not how
wethinkthey may drive based purely on their age and experience.
Simply the act of selecting a behaviour-based policy suggests to
the insurance provider that you are a lower risk driver and the
initial premium will reflect this. In fact we know that 17% of the cheapest motor insurance policies on price
comparison sites are now telematics-based, showing the increasing
penetration of these policies in the market. In addition, our
telematics policies are mileage-based, enabling customers to choose
a lower price in exchange for fewer miles' worth of insurance if
this better suits their own needs and wallet.
Therefore, rather than pricing novice drivers out of the market
on the basis of their age, experience and other factors over which
they have little control, telematics policies puts drivers in a
position where they can influence how their insurance provider will
view them as a risk. And of course, when you can say to a young
motorist that if they drive well they may cut their insurance
costs, you provide a compelling reason to drive more safely.
Yes, big data does allow more personalisation but if it's based
on factors over which customers have influence, it can only be a
good thing. By taking a personalised approach to car insurance and
the customer experience, the industry can empower motorists,
deliver a more engaging proposition and challenge the reputational
issues that have dogged the market.
Charlotte Halkett is general manager communications at Aioi
Nissay Dowa Insurance Europe (ANDIE) and was one of the
founding members of Insure The Box, a leading UK telematics
insurance provider and now part of the ANDIE group.