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Chartered Insurance Institute
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Telematics promotes inclusivity, not exclusivity

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 individual customers

The second report published by the Chartered Insurance Institute in association with Cicero Group[1], 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 health problems."

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 and independence.

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[2], 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%[3] 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.