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business models, strategies and technologies

Glimpse of a rethink about insurance structures

“Pay-how-you-drive” – one small step towards rethinking insurance structures from a customer-centric perspective

Pay-how-you-drive” as point of entry

I recently (1Q 20016) noticed that Qatar Insurance Company is piloting “pay-how-you-drive” car insurance in Qatar, highlighted as part of a push towards greater safety/fewer accidents.

“Pay-how-you-drive” car insurance is pretty much the pinnacle of a range of car insurance payment models, ranging from odometer-based payments based on distance driven to more advanced telematic-based models in which insurance premiums can be linked to a vast range of available data. This can be about the individual driver’s behaviour as well as a vast range of other relevant data (riskiness of the road over time, speed and speed limits, weather conditions, time of day, mobile phone use, etc.), depending on availability and technology access.

But the “pay-how-you-drive” idea is also a great point of entry for considering the whole relationship between technology, financial pricing structures and the (lack of) customer-centric perspective in insurance and financial services.

From average to individual

Traditional vehicle insurance normally differentiates between drivers/vehicle owners on the basis of actuarial analysis of their past accident history rather than their current (or future) behaviour. Customers are then grouped and assessed on the basis of actuarial statistics, and conventional payment structures then reward “safe” drivers with things like lower premiums and/or a no-claims bonus. Such structures mean it can take a long time before any changed patterns of driving (whether safer or more reckless) and changes in lifestyle feed through into premiums.

Unfortunately, this payment model also means I never get individual treatment – my insurance premiums are always linked to what a whole load of other drivers (less angelic and virtuous than I) are up to, and any amount of care I manage to demonstrate never really gets (visibly) rewarded. Worse still, this financial structure doesn’t really address me as an individual – my payments are based on artificial frameworks dictated and kept resolutely non-transparent by the insurance company. The customer experience consists of a blatant, in-yer-face disregard for my individual behaviour, inner saintliness and deviations from bell-curve distributions.

This in turn influences my whole relationship to my insurance company, as well as my fundamental perceptions about its services (adjectives like impersonal, arrogant, condescending, blood-sucking, exploitative … spring to mind). If I’m not alone in this niggardly negative perception, there would seem to be a ticking bomb under the relationship between insurance companies – already threatened by all kinds of disruptive new business models impacting the financial services market – and us premium-plagued customers.

Technology transmitting a path to flexibility

Perhaps “ignoring” is too strong and pejorative a word – “unable to register or document” might be a bit fairer. Insurance has traditionally been linked to concrete events, post-factum really being the only way to document anything in the pre-electronic world.

Technology – in the form of (for example) myriads of low-cost sensors, the rise of wearable sensors and the internet of things – may well provide a way to rethink this basic fact, and shift the legacy-bound evidential burden by directly linking use/behaviour to payment. The goal for customer-centric service structures and pricing must surely lie in paying for the coverage you get and the risks you actually take, rather than being arbitrarily pigeonholed on the basis of the arcane arts of actuarial abstraction.

A “bridging” technology

In the world of vehicles, a slew of commercial opportunities seems to be bubbling away via the use of an unadvertised small port mounted out of sight under the dashboard in pretty much all cars made since the 1990s. It’s seldom highlighted, but this is what mechanics use to access the car’s data and do all the fault-checking of the many electronic systems now found throughout even small, ordinary cars. This system is known as OBD (short for on-board diagnostics), and devices that plug into the OBD port are usually called dongles.

At the Mobile World Congress in Barcelona in February 2016, Samsung unveiled its Samsung Connect Auto dongle, which not only provides the car with a 4G network for multiple devices, but also uses real-time alerts to monitor driving behaviour and check the car for faults. 
dongleUS startups such as Automatic, Mojio and Zubie sell dongles that act as translator and analyst, sourcing data from the car and beaming it to the driver (and his/her smartphone) in different ways. This in turn is opening up a new market for specialist apps, all of which can contribute to rethinking vehicle insurance structures via “pay-how-you-drive” and usage-based insurance (UBI) via the OBD-II port.


However, this kind of “bridging technology” is probably only transitional until Android Auto and Carplay (the infotainment systems from Google and Apple, respectively) – or some other technology that emerges in between – emerge as the lingua franca of in-vehicle screen acreage.

But whatever the tool and whatever the particular type of insurance, it seems likely that usage-based insurance (UBI) will be the disruptor and the path – or at least one of them – to customer-centric pricing structures that will up-end the terminally tired conventional insurance market. Both vehicular and otherwise.

External info
http://khaleejdailies.blogspot.dk/2016/02/qic-insured-and-roadsafetyuae-enter.html https://en.wikipedia.org/wiki/Usage-based_insurance http://www.obdii.com/ https://en.wikipedia.org/wiki/On-board_diagnostics