Sensory technology to redefine vehicle insurance in South Africa

Innovative short-term insurers are increasingly applying sensory technology to offer clients customised vehicle insurance products based on their individual driving profiles.

Referred to as telematics by the short-term insurance industry, this technology facilitates the transmission of data about driving behaviour from a device in the client’s vehicle for processing and analysis.

Kavi Pather, Fellow of the Actuarial Society of South Africa (ASSA) and a member of the Ernst and Young Global Telematics working group, states that telematics technology has advanced enough to allow short-term insurers to begin offering appealing new insurance products. These products tend to feature customised monthly premiums as well as added benefits such as automatic crash detection and smarter emergency roadside assistance.

Philippa Wild, also a Fellow of the Actuarial Society of South Africa and Head of Technical Marketing at Discovery Insure, says customised pricing is a key benefit of telematics insurance for consumers.

“Short-term insurers traditionally price vehicle insurance cover by estimating total expected claims costs from their portfolios and then ensuring that the collected premiums will cover these claims. To determine the expected claims costs, insurers typically use general information such as gender, age, type of vehicle and location as a proxy to estimate driver behaviour.”

Wild says this approach results in drivers from a specific risk pool paying similar premiums. “As a starting point, telematics enables better drivers to pay lower premiums, especially those better drivers in traditionally perceived high risk groups, like a young male driver driving a high performance vehicle.”

According to Pather telematics technology has the potential to change the way consumers engage with their insurance and the way that insurers do business.

“Telematics-based insurance in the retail market is still quite niche in South Africa, representing only around 2.5% of the vehicle insurance market,” he says.

He explains that telematics devices were historically bulky, expensive and difficult to install, limiting their viability to usage in the commercial insurance market. Devices are now much less expensive, more reliable and, in some cases, easier to install. There are also alternative tracking options available such as the use of mobile phone technology.

According to Pather, a lack of consumer understanding of telematics-based insurance has contributed to the slow uptake, as these can be complicated products. Their complex nature has also made it challenging for insurers to develop such products.

He points out, however, that despite these challenges, telematics vehicle insurance products are certainly gaining traction in South Africa in the retail market.

This is in line with global trends. According to a recent global study on Usage-Based Insurance by consultancy group Ptolemus, there are currently 12 million customers with telematics-based policies around the world. It is estimated that this number will increase to 100 million by 2020.

Wild believes that the value offered by telematics-based insurance products for consumers will ensure their success locally.

“The telematics market is growing and I do expect it to increase in the South African market. Given the state of the economy, insurance costs are on the rise and telematics provides a way for consumers to control these costs by insuring with providers that adjust their price based on actual driving risk,” she states.

Most telematics motor insurance products currently provide clients with ‘pay-as-you-drive’ and ‘pay-how-you-drive’ options. ‘Pay-as-you-drive’ products calculate premiums based on the distances driven each month, rewarding consumers who only travel short distances.

‘Pay-how-you-drive’ products use more complex measurements in order to evaluate overall driving ability, incentivising responsible driving with cheaper premiums or rewards. Insurers are likely to evaluate driving behaviour such as harsh acceleration or braking, cutting corners, travelling long distances, travelling in unsafe areas or at night, speeding, swerving and using your mobile phone while driving.

Some consumers remain concerned that the information may be used to refute a claim if, for instance, the driver was speeding at the time of an incident. Wild explains, however, that most insurers simply use this data to incentivise more responsible driving, and that consumers must check the terms of their individual policy.

She further states that telematics enables a range of new safety features that need to be considered when assessing the value of these vehicle insurance products for consumers.

“These include, for instance, the ability to detect when the vehicle has been involved in a severe accident, triggering an alert to the insurer to offer immediate emergency assistance and dispatch it to the accident scene if needed,” she says.

“Insurers can also develop unique driver profiles based on individual driving behaviour, which can help to identify whether a vehicle has been hijacked or stolen and trigger an alarm.”

She offers the example of a client who was contacted when her husband’s car was being driven more aggressively than usual. The car had been taken in for repairs, and further investigation revealed that employees from the dealership had taken the car out for a joy ride.

Wild states that telematics means that insurers are able to offer weather warnings, traffic notifications, vehicle tracking services with panic buttons, as well as the ability to prove which party caused an accident.

Pather notes that telematics-based vehicle insurance enables greater transparency as consumers will be able to see the reports and measurements their premiums are based upon. They can then work to improve their driving and monthly premiums or rewards, he adds.