The rapid development of connected car technologies will cause a massive shift in how risk is dealt with in the motoring industry, according to an industry leader.
Corporate Risk and Insurance spoke with Aaron Solomon (pictured), founder and CEO of Edge-computing telematics firm Mobile Devices Ingénierie (MDI), on how the technology will affect the risk management and insurance landscape for vehicles.
According to Solomon, the growth of connected car technology, which includes telematics and usage-based insurance (UBI), is a demonstration of changing cultural values.
“We live in a world of growing individualism where people want personalised services and people are more and more reluctant to pay for the risk others represent, because we simply think this is not fair,” he said.
“Telematics allows insurance carriers to price their customers not based on the risk group they belong to, but on their own measured risk. Not all teen drivers are reckless drivers, some behaving better on the road than others - different driving habits and behaviors in a particular group make the traditional statistical model gentle to some and harsh to others.”
Solomon said that, aside from increasing efficiency and combating fraud, telematics also makes roads safer by making drivers more aware of how they drive, because it will affect the amount of premium they need to pay.
While not all drivers currently subscribe to the telematics model of car insurance, the potential of this technology to disrupt the insurance market is being felt across the industry.
“We see a significant adaption of UBI programs among teen drivers due to several successful online disrupters,” Solomon said. “Traditional carriers start to see an increase of the average risk of their teen insured base because the ‘good risk’ ones are moving out.”
He explained that if carriers do not adopt UBI, the time will soon come that they will be left behind with higher-risk drivers, who are more prone to encounter accidents and make claims, and are generally bad for business.
“Plus, in many countries, new legislation could mean that all new cars are fitted with systems to track their speed,” he said. “As after-market dongles and onboard units become even more mainstream, insurers will need to catch up.”
Many UBI offerings use a smartphone as an interface with the driver, but for the vast majority of solutions, there is another device behind it – a dongle that is plugged into the vehicle.
“Insurance providers using telematics appreciate that connected cars are becoming a reality and are adjusting their data expertise in advance of this,” Solomon said. “Connected insurance requires high quality data irrespective of a phone type or if the device has power. A large issue comes from today’s mono-application OBD dongle-based products that do not cater to the development of an eco-system of applications which can generate more value.
“Quite similarly to what turned a pioneering cellphone industry into the mature smartphone industry, apps should be independent from the device and people can download the apps that they want to have. If someone dislikes an app, they delete it and download a new one, with no need to change their phone. With volumes of cellphones booming, it would be expected they become cheaper, and exactly the opposite happened.”
According to Solomon, MDI’s edge computing platform Munic.io is the only device available that really caters to this business model, and at the same time is competitively priced. An edge computing platform-based dongle is the most advanced model in terms of range of data and how the data is accessed, and it allows an entire ecosystem of applications to be built around it.
Managing risk for fleets
Solomon explained that dongle-type devices not only benefit the insurer, but also prevent accidents by issuing notifications when tires need replaced or bulbs should be replaced – which helps fleet managers. Furthermore, with the high-quality vehicle data provided by MDI’s dongle, vehicle maintenance and prognostics can be improved.
“It also helps drivers improve their driving style, which is what fleet managers want as they want the safest drivers driving their vehicles,” he added. “This leads to reduced fuel costs and an improvement of operational efficiency – maintenance costs can be cut and supply chain management can be improved. It just needs to have a technology agile enough to offer fleet managers the choice of the fleet management solution that suits their organization.”