Commercial auto telematics hitting a 'tipping point' – what does this mean for insurers?

There are challenges to scaling telematics-based policies

Commercial auto telematics hitting a 'tipping point' – what does this mean for insurers?

Motor & Fleet

By Gia Snape

Telematics is revolutionizing the management of commercial fleets, driving enhanced safety, efficiency, and regulatory compliance among North American firms. 

The growth of telematics usage presents a significant opportunity for commercial auto insurers, who can leverage telematics data in their underwriting and risk management strategies.

But there are challenges to scaling telematics-based commercial auto policies, including the logistical and economic issues of deploying telematics apps and a fragmented telematics market, an expert told Insurance Business.

“Telematics has hit that tipping point,” said Charles Smith (pictured), VP of product management at SambaSafety, which provides cloud-based risk management solutions for more than 15,000 organizations with automotive mobility exposure.

“It’s in over half of commercial vehicles. The larger fleets have taken it first, and it’s going further into smaller and smaller fleets. But app-based telematics doesn’t have the traction that it has in personal lines.”

Personal versus commercial telematics: Different growth challenges

Telematics involves the use of devices, sensors, and GPS technology to collect, transmit, and analyze data about a vehicle and its driver. 

There is a notable difference between telematics usage in personal auto and commercial auto, Smith said.

“The technology might be similar, but the dynamics are very different. In the consumer space, it’s always been challenging for telematics to grow outside of the young-driver, high-risk market,” he said.

Using apps is a way to broaden access to telematics among individual consumers, Smith explained. But insurers are still challenged in attracting users to telematics-based policies because of consumers’ data-sharing concerns.

“On the commercial line side, there’s a very different dynamic because often, the vehicle already has a device in it and the driver expects to be monitored or accepts that he or she is being monitored by way of their employment,” Smith said. “Using telematics for insurance, then, is less of a jump.”

The telematics data hurdle

Commercial auto insurance companies have three options to scale a telematics-based offer: deploy an app, supply telematics devices to policyholders, or use already available telematics data.

To leverage telematics data from commercial vehicles, however, insurers need a way to collect and standardize data from different types of telematics devices.

“A lot of fleets don’t give a mobile phone to their drivers, and they can’t insist that a driver install a work app on their personal mobile phone,” Smith pointed out.

“And while you think that an app might be straightforward to deploy, data quality is an issue. The quality of data from an app is not as good as a professionally fitted device.”

On the other hand, deploying their own app-based telematics system is an unattractive option for commercial auto insurers due to the cost and the logistical issues.

“Deploying an app is difficult, and funding your own hardware costs a lot, hence why the third option is the one we see most insurers choosing, which is using the data in the existing device,” Smith said.

“Each telematics provider produces the data in a slightly different structure and format, so the more insurers scale, the more they realize the challenge of aggregating and standardizing the data.”

Hard market in commercial auto insurance

Despite the challenges in implementation, telematics is a powerful tool for commercial auto insurers to keep their premiums down, especially amid rising costs.

“We’re entering an insurance market that’s hardening pretty rapidly. Premiums are going up, driven by claims cost, inflation, and social inflation, and fleets are increasingly looking for ways to try and combat that,” said Smith. 

“This is the single biggest driver [in telematics usage]. [Firms] can seek to try and get premiums that better reflect the risks they pose by engaging with insurers and saying, ‘I’ll give you access to my telematics data, then you’ll give me a premium that reflects the mileage I do, the behavior of my fleet, or the evolving risk profile’.”

What are your thoughts on the use of telematics in commercial auto insurance? Share your comments below.

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