Commercial Auto remains an extremely challenging line of business for insurers. From trucking to social service organizations to landscaping contractors, operators (and insurers) of commercial vehicles face a daunting array of challenges: Higher Accident Fatality Rates, Aging Infrastructure, a Mechanized Plaintiff Bar, Distracted Driving, and Rising Costs of Bodily Injury and APD Claims.
With the advent and increased proliferation of telematics technology, in theory, we should be seeing a favorable shift in commercial auto results by now. However, 2023 was the fifth time in the last six years that the insurance industry posted a combined ratio north of 100%, and only modest improvement is forecast for 2024 – 2026.¹
Telematics. Before delving into why telematics are failing insurers, let’s first clarify what is meant by telematics. At their core, telematics involve installation of a Global Positioning System (GPS) device or Video Camera (road-facing or combined driver-and road-facing) in a vehicle. Combining positioning and accelerometer technology, these devices collect a range of direct and derivative data elements based upon vehicle location and rate of travel (with cameras obviously also adding a video component). This information is then transmitted wirelessly and captured for analysis.
From the insurer perspective, telematics capabilities should present a treasure trove of potential benefits for multiple phases of the insurance equation:
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- Risk Selection, Underwriting, and Pricing – Whether assessing individual risks or steering their portfolios, telematics data offers insurers the opportunity to make decisions based upon more accurate, and more granular, exposure information instead of relying on (potentially anecdotal) self-reporting. Telematics also offer novel data elements that can be used to spot threats and opportunities as well as develop new product solutions.
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- Loss Prevention – With greater transparency on driver behavior / patterns, vehicle maintenance, and routes of travel, opportunity exists to proactively suggest modifications that can lower the level of risks presented by insureds
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- Claims – Particularly in camera-based deployments, insurers can access hard evidence with which they can better defend a claim or when the facts are not in their favor, proactively take steps to initiate rapid settlement.
Nevertheless, as evinced in the industry statistics above, few insurers are seeing these benefits manifest in their results. With the Federal Motor Carrier Safety Administration’s ELD mandate dating to 2017 (and applicable to millions of vehicles), material increases in IoT adoption in other lines / classes of insurance (e.g. personal auto), as well as a growing acceptance of technology (including cameras) in many walks of life, a lack of insured appetite and adoption would not seem to be driving the failure of telematics to deliver for insurers.
Broken Promises. While factors such as shifts in the legal landscape certainly may account for some of the disparity, there are other potential causes to consider as well:
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- The Limits of Automation – Telematics technology can provide a wealth of information. However, while many / most Telematics Service Providers (TSPs) are loathe to admit it, successful telematics programs require regular attention. The devices themselves need attention from time to time, and promoting desired driver behaviors necessitates regular, intuitive, human reinforcement.
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- Competing Priorities – In many smaller to medium-sized operations, the individuals charged with vehicle management and oversight have various additional (and often more pressing) responsibilities, making vehicles something of an afterthought. Consider the example of a landscaping contractor. While trucks are required to get to and from job sites, the firm likely views their core business to be landscaping and places the bulk of their attention on the more apparent aspects of delivering their service (staffing, equipment, scheduling, etc.). As such, regular and consistent management of a telematics program can easily and quickly fall down on the priority list.
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- TMI – Not surprisingly, most TSPs are technology companies at their core, and a “Silicon Valley mindset” can influence what and how they deliver. It is common for TSPs to set up reports and dashboards displaying tons of data. However, considering the preceding point regarding priorities, as well as the fact that many of those charged with the day-to-day management of telematics programs are not subject matter experts, data without context or direction can be overwhelming.
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- Inconsistent Data – TSPs and manufacturers of telematics devices do not consider or capture information in uniform ways. Some may receive / provide data on a second-by-second basis while others only refresh once per minute. Also, definitions of “events”, such as a hard-brake, vary (and customarily do not take into account the meaningful context of factors such as vehicle weight). Understandably, interpreting these disparities (and common-sizing data from different sources) is often beyond the scope of a lay person whose primary job function is not telematics.
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- Unmonitored Devices – While the technology is generally reliable, telematics devices can get unplugged (either accidentally or intentionally), cameras can become mis-aligned, and equipment can get damaged. Understanding this, vigilance on equipment functionality is crucial to a well-functioning telematics program.
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- People – While telematics programs can yield a variety of operational benefits – from better maintenance practices to route and fuel management – for an insurer perhaps the greatest benefit lies in a program’s ability to provide visibility into and enable change to driver behaviors. While it is relatively easy to secure visibility on driver behavior with technology, changing behavior with technology alone can be a fruitless endeavor as it omits human perspective. In a tight employment environment, this human perspective is even more important. Technology alone will not articulate to a driver why it is in their best interest to do / not do certain things. Technology alone is also easily defeated (as easily as turning up the volume on a vehicle’s radio). Technology alone will not recognize the nuances of a driver’s other job responsibilities. Technology alone by definition is unidirectional and offers a driver no opportunity to comment or provide constructive suggestions.
Solutions. Fortunately, the challenges noted above are surmountable. The prime key to resolution is recognizing that technology is only one part of a successful telematics program. The solutions comprising the other side of the equation include:
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- One Size Does Not Fit All – It is certainly helpful to recognize that operational characteristics vary by class of business – the day-to-day functions of a social service agency are certainly different than those of a road contractor. Equally, even within a class of business, variability often exists – human resource policies, business scope, hours of operation, radius of travel, geographic location(s), etc. Understanding this, bending the telematics program to fit the business is usually a better approach than trying to bend the business to fit the telematics program.
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- Simple Is Better – Appreciating the points above on priorities and information overload, the simpler the solution, the easier it is to execute. Enabling the person or persons charged with managing a telematics program to focus on a few key, clear benchmarks instead of wading through volumes of data to divine signal from noise makes execution practical. The same applies at the driver level – restricting the item count of assessment points to a comparatively small set of intuitive measures elevates the opportunity for success.
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- Remove the Friction – Ease of implementation – at program inception and when new vehicles are added – makes it easier for an insured to both start and remain current with their programs. This ethos certainly applies to the devices themselves (think easy self-installation vs. the need to enlist a third-party) and also extends to arming insureds with on-point and easy-to-use tools to help them communicate and manage their programs.
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- Collaboratively Set Goals and Incentives – Understandably, people tend to perform better when they feel they have a voice in determining their objectives. Equally, performance is enhanced when there are incentives associated with goal attainment. Certainly, insurer-provided incentives – whether coverage or premium oriented – have a bearing on the insured’s performance. In turn, insured-provided incentives impact their drivers’ performance.
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- Regularity – A successful telematics program not only realizes improvements at program inception, it persists improvement over time. From staying on top of equipment functionality to onboarding new drivers to preventing priority drift – regular attention is fundamental to sustained improvement.
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- People – Last, and far from least, it is vital to understand that the results of telematics programs are a function of the people involved with the programs. While the points above can help those charged with overseeing programs, it is also vital to focus on the drivers themselves. This starts with ensuring drivers understand the reasons behind the program, including how it can help them. Additionally, articulating what information will be captured and how the program will function helps to build trust. When it comes to driving behavior, recognizing (and rewarding) positive behaviors instead of merely focusing on “corrective” action can assist in securing and maintaining driver buy-in. Finally, providing drivers with a voice in the program and how it functions not only enhances the tenor of their participation but also provides a mechanism to address changes that may not otherwise be visible at the management level.
The promise of telematics remains. Realizing the benefits of this promise in insurer results simply entails recognizing and promoting a holistic blend of technology elements with human realities.
Connect with Orion Fleet Intelligence today. Our proven approach combines data analytics and personalized driver coaching that minimizes risk, reduces loss, and increases profits for our partners.
¹ https://www.iii.org/sites/default/files/docs/pdf/triple-i_trends_and_insights_commercial_auto_brief_10242024.pdf
