< Study Room | 06.11.2017 |

Joined-up thinking

Joined-up thinking

Selim Cavanagh offers some advice on unlocking the mass market potential of usage-based insurance.

An explosion in data emanating from an increasingly connected world is fundamentally changing the insurance landscape, powering usage-based insurance (UBI) to give consumers and businesses the choice to be insured based on their actual rather than assumed risks.

Intel forecasts 200 billion connected devices by 2020, nearly 25 connected devices for every person on earth.And it is predicted that by 2025 at the latest, all new cars manufactured in Europe will be connected and have the ability to deliver driving data directly from vehicle to the insurance market.

There is little doubt that insurers need to be leveraging connected data today with plans for tomorrow in mind. The benefits are now known in terms of improved loss ratios, book cleansing, expense management and in motor, collision cost and frequency decline. Those operators who move fast will be in pole position when it comes to the learnings they achieve, the competitive advantage they are able to gain, their pricing accuracy and operational efficiencies. Ultimately, they will own the customer lifetime value fastest.


UBI is already working to great success in the young driver motor insurance market, by improving pricing, reducing claims and creating greater customer engagement. Some 75%-80% of young drivers in the UK today have a telematics policy, typically saving up to 41% on their insurance premium.

There has also been a marked downward trend of 31% in road casualties in the 17-19 age bracket vs 7% for all other age segments, which we believe can be attributed to the increasing availability and adoption of telematics insurance.


Added to this, consumer attitudes to behaviour-based insurance and data ownership are changing. A study by LexisNexis Risk Solutions in 2016 found that 78% of motorists think the price they pay for insurance should be linked to their driving behaviour. In a more recent study of 3,000 motorists, a staggering 79% said they would consider a telematics policy.

The problem is that only 10% were offered one at renewal. Why? Because UBI has not penetrated the wider mass market, due in large part to the cost of acquiring the driving data that underpins the telematics policy.

However, we have now reached a tipping point as the insurance sector is starting to cover its costs from UBI propositions, consumers feel more comfortable and the cost of collecting telematics data has fallen through the emergence of new, lower cost data collection solutions.


Telematics for insurance started with data solely derived from fixed black box devices. Costs included the actual physical hardwired box, installing it, gathering the data and the cost required to obtain meaning from the data and to ultimately achieve some value from it.

We are now seeing increasingly sophisticated smartphone apps, and a 12V device that enables insurers to gather driving behaviour data at about 15% of the cost of a hardwired device while providing the level of accuracy and data quality needed to scale for more drivers on the road.

This is a real game-changer as it means that motorists can gain all of the benefits of having a telematics policy, but do not have to have a black box fitted to their car; they just plug in and go. It also eliminates some of the operational issues insurers have needed to consider.

With lower costs, the opportunity opens up for mass market propositions to be developed. Crucially, the insurers that get on board with this phase of development, taking telematics mainstream, will be those that have the strongest opportunity to remain relevant for the connected and ultimately driverless car.


There has already been much debate about the way in which insurers and auto manufacturers – also known as original equipment manufacturers (OEM) – will work together in the future. Eventually, most cars will have the inbuilt ability to collect driving data and there already exists a vast range of devices and variations in hardware and software technology.

How this data is managed and converted from raw driving data into a rateable factor is crucial in determining how these two sectors come together to deliver UBI.


A central hub capable of ingesting, cleansing and contextualising driving data regardless of data source addresses this problem. This is the prime objective for LexisNexis Risk Solutions’ investment in its global telematics platform. By bringing the automotive and insurance industries together in a single hub, driver scoring can be delivered to the entire insurance market while still enabling insurers to run their existing one-to-one UBI programmes.

Establishing an insurer panel is key. With conditional approval from six of the world’s largest insurers, the market will benefit from coordinated, filtered and standardised OEM connected car data at point of quote, with no significant upfront costs. Consumers can choose to share their driving score or not, thus enabling far greater use of self-selection alongside the traditional historical and real-time driver behaviour analysis and driver scoring.


What is exciting is that in the future we will have even more robust data on how the person and the vehicle perform. The data from vehicle sensors, accelerometer data as well
as the pairing of telematics and vehicle-integrated data can give a clearer picture of risk.


The innovations in motor insurance provide a template for how connected home data could be used by the insurance sector in the future. Fundamentally, data from connected devices can help insurers act early to reduce or even prevent losses. In motor it is the black box, app or 12v device, in property it might be the use of water sensors to help reduce the volume and cost of escape of water claims.

We are seeing more and more partnerships emerge between home insurers and tech firms, giving operators powerful insights to help mitigates risks. How this information is used to help price risk will help accelerate developments in this sector. As the data from connected devices grows, so too will the need for an industry solution for analysing and scoring this data, enabling all the learnings gained from telematics motor insurance to be harnessed for the property insurance market.


Connected data leveraged in the right way enables better decisions to be made in real time throughout the customer lifecycle. UBI is likely to become commonplace as consumers increasingly demand fair pricing based on their actual rather than presumed risk.

The insurance sector has created a strong foundation on which to meet this demand – it now needs to take UBI to the next level, exploiting all the technological advances being made to bring insights from connected data.

Selim Cavanagh is vice-president, insurance, UK and Ireland at LexisNexis Risk Solutions


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