Redefining the Customer Experience

January 2011 Mobile telematics and the future of automotiveinsuranceIFRS

industry series

At a glance
Mobile telematics has the potential to fundamentally transform engagement between insurers and customers. With mobile telematics, differentiation in the industry could be based less on commoditized factors and more on valuable, less imitablequalities. Widespread, adaptable, and affordable technologies make mobile telematics easier to develop, introduce, and support than ever before.

Introduction
Insurers have historically turned to both integrated in-car and postpurchase telematics technology systems to support information gathering, transmission of location data, and value-added service provision. It is no secret, however, that most insurers have struggled to make telematics an integral part of their core business strategy. In most cases, insurers have employed a restrictively narrow strategic approach in addressing two main issues: Initially, how to recoup the cost of the telematics device or platform and, subsequently, how to create a compelling consumer value proposition that includes the sharing of driving data as the basis for pricing and underwriting. Meanwhile, insurers continue to leave on the table significant opportunities to fundamentally redefine the customer experience. The recent evolution of smartphones and mobile applications can help insurers approach both of these long standing problems from a very different angleone that supports a mutually beneficial and mutually reinforcing relationship for both the consumer and insurer.

Mobile telematics and the future of automotiveinsurance

Widespread, adaptable, and affordable technologies make mobile telematics easier to develop, introduce, and support than ever before
Smartphones have become the mobile device of choice for an increasing number of consumers. Computers once the size of basements are now pocketsized and allow users to place calls, play music, and search the web. No longer are cell phones simple, singlefunction devices that serve only to provide basic voice-based interaction on cellular networks. Todays advanced wireless networks support 24-hour access to the internet, email, and data. Vast improvements in hardware technology (improved processing power, data storage, and PC-like performance) and advancements in software (platforms that allow independent developers to create functionality and drive software innovation themselves) have further empowered these networks. The resulting communications technology model is predicated upon modularity and perpetuated by scalability. This new paradigm allows companies, customers, and communities alike to adapt devices andfeatures to their own specific needs. Smartphone use is now widespread and extends far beyond making and placing calls. Obtaining directions, identifying points of interest, checking the weather, and locating emergency contacts are now simple, easy-to-use features on most devices.

All of this begs the question: Do smartphones eliminate the need for standalone in-car systems? After all, if drivers can mount smartphones on dashboards, why should they pay for a second computer embedded in theircars? First of all, the evolution of the smartphone is not necessarily a threat to existing in-car platforms, especially as an increasing number of complementary features and functionalities pair smartphone capabilities with in-car offerings. A number of automakers already offer the ability to connect mobile devices to navigation and entertainment systems. These platforms complement, rather than superseded onboard equipment. Moreover, existing communication barriers between and among cars and smartphones are quickly eroding, which present significant opportunities for novel applications. In the United States, 93 percent of model year 2010 vehicles offered standard or optional wireless connectivity for mobile devices. The American federal government has already designated 75 megahertz of radio spectrum specifically for vehicular data transmission, and a number of research initiatives aim to take advantage of the new bandwidth. One large automaker recently unveiled technology that will allow vehicles to exchange data (turn signal notification and traffic history, for example) with any communicationenabled device on the roadwhether it is another vehicle, smartphones in the vicinity, or even a traffic light.

Redefining the Customer Experience

As integration continues to deepen, one noteworthy advantage that the smartphone enjoys is a short product lifespan, which enables rapid incorporation of technological advances and quick adoption of new applications. Recent examples include 4G connectivity and robust voice command recognition. These broader technological trends are beginning to redefine consumer expectations. Several manufacturers have already launched or will soon launch applications that allow car owners to remotely view diagnostic information and control aspects of vehicle operation. Mobile applications can now lock or unlock doors, sound the horn, and even remotely start theengine.

Automakers also are working to create seamless interaction between mobile devices and in-car systems. Applications that offer real-time readings of fuel level, remaining oil life, tire pressure, and fuel economy appear in a format comparable to that of the in-car dashboard. Mobile devices that provide a turn-by-turn mapping interface also can communicate with the cars onboard system and send the user driving instructions after he has entered destination information in thehandset. Many automakers also are rolling out applications that offer tailored features that appeal to specific brands or market segments. For example, some higherend brands have created applications that include concierge services and restaurant guides, and many automakers provide entertainment and information services targeted at individual buyer segments.

Vehicle-specific data from mobile telematics can minimize both direct and indirect costs for providers while providing effective riskmanagement.

Mobile telematics and the future of automotiveinsurance

Why should insurance companies care about the growth of mobiletelematics?

Capabilities like stolen vehicle recovery, automatic crash notification, and vehicle data recording can minimize both direct and indirect costs for providers while providing effective risk management. In addition, access to vehicle-specific data from mobile telematics applications also can help insurance companies fight fraud. Basic vehicle data can say a lot about the real cause of an accident or why a car has disappeared. The insurance industry is constantly looking for opportunities to reduce theft and improve driver safety, and the ability to secure a car from anywhere or monitor key vehicle gauges offers significant value for both insurers and customers. Mobile telematics service providers already are introducing applications that are able to connect a cars computer to a mobile phone for the transmission of crucial information. This type of enhanced communication could help drivers increase fuel

economy, obtain information on fairpriced service, and, most importantly, improve driving practices and vehicle maintenance. The software works by using a vehicles OBDII data port and the consumers smartphone Bluetooth connectivity. Data is transferred to the user in the form of a Twitter feed, e-mail address, or web portal, allowing for the instant transmission of rapid acceleration or high speed warnings, vehicle health monitoring, fuel savings feedback, and preventive maintenancereminders. While insurance companies currently do not have access to the data from these applications, the implications of the existing mobile telematics technology are significant. They represent a promising attempt to bring vehicle telematics to a much broader group of drivers. Telematics are no longer limited to owners of new cars or luxury vehicles that already have in-car infotainment systems. Mobile telematics applications could provide insurers with driver activity information for anyone with asmartphone.

Redefining the Customer Experience

The traditional, reactive touch points that occur mainly after accidents could shift toward proactive, preventative interactions based on attractive add-on services.

Actuating on telematics
The value and efficacy of a robust telematics strategy will rely upon three main elements: (1) Incorporating telematics as a primary component of an insurers broader mobility strategy, (2) Forming strategic partnerships with vehicle manufacturers, smartphone developers, and data providers to constantly create and implement new value-added services, and (3) Integrating telematics data, information, and services into the core internal marketing, segmentation, underwriting, and claims value chains. As part of a broader mobility strategy, telematics has the potential to fundamentally transform engagement between insurers and customers. The traditional, reactive touch points that occur mainly after accidents could shift toward proactive, preventative interactions based on attractive add-on services. For example, an insurer could offer customers real-time advice about avoiding areas of heavy congestion, regions with severe weather, and areas where accident rates are higher. The ability to improve driver safety, minimize risk, and decrease the likelihood of claims is an opportunity any carrier should welcome. By forming strategic partnerships with key technology enablers, insurers also can begin to provide truly unique products and services. Combining

standard coverage with features never before associated with car insurancenavigation assistance, traffic avoidance, itinerary planning, and vehicle diagnostics, for example could be a game-changer, conferring upon first-movers an opportunity to drive market expectations and capture future growth. The insurer that can offer truly customized and personalized services that strategic partnerships enable will be able to create a truly unique customerexperience. An ultimate goal for insurers would be to reach a state where they can leverage mobile telematics as a key component of their core business strategy. Typically, insurers calculate premiums by using several common risk factors as proxies (age, sex, credit score, driving record, and car details) that the prospective customer provides prior to the underwriting process. It is very difficult to factor into these premium calculations the unique driving behaviors or potential risks specific to each potential customer. Telematics, however, has the potential to completely transform this decadesold model. Mobile telematics can provide insurers access to actual, real-time driving data and habits for large numbers of consumers. Armed with this information, insurers could more accurately measure and price premiums, customize services, improve safety, and reduce claim costs.

The way forward

Recent technological advancements, widespread adoption of smartphones, and the ever-evolving nature of vehicle communications systems together represent a unique confluence of trends that present a significant opportunity for insurers. By incorporating mobile telematics into the core business strategy, insurers can fundamentally alter and improve the value proposition for consumers in an unprecedented way. The overall success of a mobile telematics strategy will depend on the following key factors: 1. Although the value proposition for insurers may be fairly straightforward, they will need to make the value proposition for consumers clear and compelling. In addition to the broader benefits of offering consumers more accurate pricing and coverage, insurers will have to provide them services and create features that serve as differentiating factors in theindustry. 2. The potency and salience of the consumer value proposition will also depend on how effectively these telematics platforms yield real-world benefits (for example, applications that help improve gas mileage, save travel time, and offer useful maintenance reminders).

Mobile telematics and the future of automotiveinsurance

Tangibly connecting mobile telematics to concrete elements of the driving experience will be critical in enhancing the usefulness and relevance of the platform forconsumers. 3. Insurers should commit to proactively developing and improving features and capabilities. As market-transforming technologies continue to evolve at a break-neck pace, insurers should remain focused on responding to ever-shifting consumer expectations.

4. If deployed effectively, mobile telematics can change the way consumers view the role of insurance providers. Differentiation in the industry could be based less on commoditized factors (pricing and coverage levels, for example) and more on valuable, less imitable qualities (safety, efficiency, and convenience, for example). First-movers will possess a significant advantage in shaping this new engagement conversation withconsumers.

5. By re-anchoring customers to a value proposition defined by a holistic suite of services and support, insurers have the opportunity to create a new and tangible set of benefits for consumers, thereby generating and sustaining long-term strategic advantage.

Acknowledgements
Author Tom Kavanaugh Research PwC-Diamond Advisory associates Molly OLoughlin Franklin Shaddy To have a deeper conversation about mobile telematics, please contact: Tom Kavanaugh PwC-Diamond Advisory Services PricewaterhouseCoopers 312 298 3816 tom.kavanaugh@us.pwc.com

Redefining the Customer Experience

www.pwc.com

This publication is printed on Mohawk Options 100PC. It is a Forest Stewardship Council (FSC) certified stock using 100% post consumer waste (PCW) fiber and manufactured with renewable, non-polluting, wind-generated electricity.

30% total recycled fiber

2011 PwC. All rights reserved. PwC and PwC US refer to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. DT-11-0049