Auto Insurers Could Save Money with Technology

Technology-enabled programs could save auto insurers $20 billion in annual claims payouts, or 17 percent of personal lines auto insurance losses each year, while making driving safer, according to Diamond Management & Technology Consultants Inc.

Furthermore, almost eight of 10 U.S. households are reportedly open to some kind of risk monitoring/reduction device that would collect information about their driving habits, new Diamond research reveals.

Vehicle telematics, using sensing, processing, and wireless technology, would reportedly deliver savings by reducing accidents, lowering legal costs, improving efficiency of claims processing, and decreasing fraud and theft. From the wealth of information it generates, the technology also could allow insurers to set more accurate insurance premiums and create fresh revenue opportunities from new monitoring and risk prevention services.

Despite this promise, automotive insurance companies so far are reportedly focusing only on telematics technology to promote safer teen driving instead of leveraging it to help all drivers—which would produce bigger benefits for insurers, notes Paul Blase, co-managing partner of Diamond’s insurance industry practice.

“Telematics is the future. Vehicles are talking, and it’s time for insurance companies to take a bigger part in the conversation,” says Blase.

Recent Diamond research of 1,540 U.S. households offers new insights into how receptive drivers are to some kind of risk monitoring/reduction device in their vehicles.

Seventy-seven percent were willing to have a risk monitoring device that would collect real-time information about their speed, location, and other driving habits. Respondents did not appear particularly concerned about who would handle that vehicle information: their insurer, a third party or even themselves. When offered a choice between two options, 48% preferred a device that would send information about their driving to their insurer, with up to a 10% discount for good driving, while 26% preferred a device that would reduce the chance of an accident but would offer no discount.

For insurers, the biggest emerging opportunity may be found in the growing presence of in-vehicle event data recorders (EDRs). Many cars and trucks already have EDRs, and the federal government has mandated them for all new cars by 2011. EDRs are similar to the ones found on airplanes; they record what happens just before, during, and after an accident.

In a new report, “Cars and Trucks Are Talking: Why Insurers Should Listen,” Diamond quantifies the potential gains from EDRs, global positioning systems, and other emerging telematics, including:

• Approximately 33 percent of bodily injury claims from auto accidents include some type of fraud or padding. Telematics data would identify cases that have a high probability of claims deception.
• Telematics can increase the recovery of stolen vehicles from 62% to 80%.
• The average auto claim payout is three times higher when a lawyer gets involved--$10,600 vs. $3,200 for claims without a lawyer. By generating more objective accident reports, fewer lawyers would be needed to assess fault.

A complete copy of Diamond’s report is available by sending an e-mail request to: insurancetelematics@diamondconsultants.com.