Peter Furness: Telematics - perhaps Big Data can deliver on the hype?
20 May 2014

Back in 2006 we set up the ‘Real Time’ page of the GKB (click here for access) to monitor the developments flowing from the tracking of people (and things) in time and space. One of these is Telematics – the tracking of vehicles using so-called GPS-enabled ‘black box’ technology reporting on position, time, speed, acceleration, braking and other metrics in near real time - which promised everything from ‘pay how you drive (PHYD)’ motor insurance to the alerting of emergency services after accidents, stolen vehicle recovery and efficient road charging.

So, how far have we come in eight years? The answer is quite a long way looked at globally, though the UK had a bit of a stuttering start. A study by Ptolemus Consulting Group (click here for access to the usage-based insurance study) shows that the US is leading the world, with manufacturers such as General Motors fitting their ‘OnStar’ black box technology to many models and insurers such as Progressive predicting that 25% of the entire motor insurance market will be telematics-based by 2020.

But Europe is catching up fast, with two factors driving adoption. The first was the 2011 ruling by the European Court of Justice that ‘taking the gender of the insured individual into account as a risk factor in insurance contracts constitutes discrimination’ (click here for more information on the EU Gender Directive) which came into force in December 2012 - and, like it or not, gender is a major risk factor especially in motor insurance. Insurers therefore see usage-based insurance (UBI), such as PHYD, as a good alternative. The second factor is eCall (click here for more information) which is an EU initiative to deploy, by 2015 (though some observers think 2017 is more realistic), a device in all vehicles that will automatically dial 112 in the event of a serious road accident, and wirelessly send airbag deployment and impact sensor information, as well as GPS coordinates to local emergency agencies.

In the UK, early progress was thwarted when the Government scrapped its plans for national road pricing in 2007 (click here for access to the article) following a public backlash and strong protests from privacy campaigners. In 2006, the Norwich Union (now Aviva) was the first insurer to launch a PHYD insurance product, only to abandon the market in 2008 in the wake of surveillance and privacy fears (click here for access to the article). Despite these setbacks, adoption of telematics is growing in the UK as witnessed by the recent tie up between the AA and Ingenie to provide telematics solutions (click here for access to the article); also the sell-out London conference in May 2014 ‘Insurance Telematics Europe 2014’ (Click here for access to conference and exhibition round-up).

There are still many challenges, especially for insurers. The SAS Institute in its white paper ‘How Big Data is Transforming the Auto Insurance Industry’ estimates that one hundred thousand PHYD policyholders could generate more than a terabyte of telematics data annually whilst posing many analytical challenges for how best to assess risk with the new data (click here for access to the white paper). At the same time, no standards have yet been agreed across the industry for how telematics data should be stored or how the risk-related history for each policyholder would be moved from insurer to insurer when customers switch providers. 

Privacy issues have always been a concern, especially in the UK. However, recent research by YouGov for O2 suggests that a majority of British drivers would be willing to have their driving monitored if it meant lower insurance premiums, though the research also reveals widespread ignorance about telematics technology and its potential benefits (click here for access to the report). The UK’s Information Commissioner’s Office is taking a close interest in telematics developments; Dave Evans at the ICO has highlighted data protection issues faced by companies using telematics technology, for example in PHYD motor insurance, warning of the potential difficulties of fulfilling data subject access requests from policyholders asking for ‘everything you hold about me’ (click here for access to the ICO presentation).

There is no doubt that telematics offers substantial benefits for the consumer. Quite apart from the benefits from cheaper insurance (at least for careful drivers), the impact on road safety is likely to be very substantial too, as well as the potential for improving accident and emergency response through the eCall initiative. Whilst there may be a few challenges still to be fully overcome, this really does seem to be an example of where Big Data can deliver on the hype.

Any views or opinions presented are solely those of the author and do not necessarily represent those of the MRS Census and Geodemographic Group unless otherwise specifically stated.