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Aaditya Jain

Telematics in Insurance – A Big Opportunity yet to be Fully Explored | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Price competition used to define the competitive dynamics of the P&C insurance industry. However, as margins started squeezing with low interest rates and rising claims costs, it became imperative for insurers to focus on product differentiation in order to attract new customers and drive premium growth.

This is when usage-based insurance (UBI), an insurance product model where the premium varies according to the risk of claims that the insured’s policy-related behavior poses, started gaining traction. UBI is noteworthy as it offers a remarkable opportunity for insurers to deliver hyper-personalization and evolve from a product-centric to a customer-centric business mindset.

To date, the auto insurance segment has been the most aggressive adopter of the UBI model, which is enabled by the underlying telematics infrastructure. Telematics technology enables insurers to capture each customer’s driving data, which is then used to continually update the customer’s risk profile and compute the payable premium. Data collection devices have evolved from black-box to OBD-II dongles to in-built telematics units in automobiles and smartphones.

UBI’s Business Case is Strong; however, Sourcing Gets Complicated for Insurers

We expect the market for UBI to grow substantially at a CAGR of ~40 percent during 2018-2020, with an estimated 35-40 million UBI policies in force by the end of 2020. This is certainly impressive growth.

However, to launch UBI products, insurers must make substantial investments in connected devices and data infrastructure. Moreover, not all insurers have the scale, risk-appetite, investable capital, or technology expertise to make significant inroads into UBI. Thus, insurers are leveraging third-party vendors to support their telematics journey.

Yet, the vendor ecosystem is fragmented, making it challenging for insurers to determine what organization to partner with.

Here’s the breakdown of the three major categories of telematics vendors:

Telematics Service Providers (TSPs)

These have the capability to manage the entire value-chain, from telematics device sourcing to device deployment and maintenance to end-customer engagement to telematics data management. However, as a single TSP might not be able to provide access to all the underlying connected devices, insurers must pre-strategize their requirements for data depth and breadth. There have been cases where insurers have entered into partnerships with multiple vendors with varying competency to leverage connected devices and technology maturity.

Data exchanges

The core value proposition of this class of vendors lies in their access to huge volume of data and their data handling capabilities, which reduces the burden of data management at the insurer’s end. Players that have entered this market also have developed a modest understanding of the insurance sector, which enables them to provide risk assessment support to insurers. However, while data exchanges typically can augment insurers’ telematics journey, they cannot provide end-to-end support.

OEMs

OEMs have emerged as significant competitors to the other classes of vendors due to their direct control of the point-of-sale. As the telematics unit is prebuilt into the automobile, insurers do not have to worry about the entire infrastructure management of telematics devices. However, partnering with an OEM could also mean loss of revenue from value-added services.

Telematics in Insurance – A Big Opportunity yet to be Fully Explored - potential impact

Service Providers as the Orchestrator – Big Opportunity Waiting to be Capitalized

With each of the categories of vendors specializing in specific parts of the telematics value-chain, insurers face a big challenge in connecting with different parties for different values, and in managing the multi-vendor ecosystem.

This is where IT/BP service providers can enter the picture. To date, they have failed to establish a competitive differentiation for themselves in this market. However, considering they have a sound understanding of insurers’ businesses, operations, and IT systems, they could provide significant value as the orchestrator of this branched ecosystem.

They could look to source the best value from different classes of vendors by tying partnerships with select technology vendors across the ecosystem. Then, they could serve as a specialist to help insurer wrap their operations around telematics technology to drive product differentiation.

In this model, service providers could – potentially – offer an integrated value proposition that would involve: owning the implementation risk; providing value-added services such as risk assessment and customer management support; managing the complexity involved in coordinating with multiple classes of vendors; and assuming responsibility for the risks (e.g., business risk, technology lock-in, etc.) associated with engaging with niche firms.

This could be a win-win-win scenario, for insurers, end-customers, and providers.

How service providers ultimately decide to capitalize on the telematics opportunity remains to be seen. However, they should be cognizant of not frivolously trying to compete where their expertise does not lie, and instead leverage their strengths to make themselves most relev

The Characteristics of Europe’s Digital Banking Leaders | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Disruptive forces – open banking regulations, growing FinTech ecosystems, and increasing demand for a seamless customer experience – are forcing banks to make significant investments in digital technologies.

The UK and European banking market is characterized by heightened activity on account of multiple converging factors

To effectively compete, banks must move away from being perceived as physical structures that offer financial services/products to an ambient fabric that connects people and businesses. They must transition from a transactional, product-centric approach to an intelligence-oriented customer-centric model centered around customers’ journeys. Artificial Intelligence (AI), API-enabled open banking architecture, and cloud are fast-becoming the foundations of banks’ IT architecture.

In order to evaluate and measure how organizations are faring in their leverage of digital technologies, Everest Group several years ago developed the Digital Effectiveness Assessment model.

Everest Group Digital Effectiveness Assessment model

On the Capability maturity axis, we measure organizations’ presence on all digital platforms, the quality of their mobile apps and online banking capabilities, their activity on various social media channels, their self-service innovations, and their open banking capabilities. On the Business outcomes axis, we measure their digital prowess using parameters including customers’ digital channel adoption, the customer experience (based on mobile app ratings, website optimization, and engagement), brand perception, and financial performance.

Earlier this year, we used the model to determine the European digital banking leaders. And from a field of the top 20 banks in Europe, we identified seven: Barclays, BBVA, BNP Paribas, HSBC, KBC Group, Lloyds, and Société Générale. These financial institutions have achieved:

  1. Superior financial performance: 17 percent higher growth in deposits, and 3 percent advantage in efficiency ratio in 2017
  2. Superior customer experience: Higher penetration of digital and social channels (e.g., up to 75 percent of BNP Paribas’ retail customers are using mobile app and online banking channels), mobile-based advisory capabilities, and personalized products and services. These leaders’ mobile application ratings are 7 percent higher than the other banks we evaluated.
  3. Stronger customer engagement: A superior user interface (UI), feature-packed mobile apps (e.g., BBVA offers 80 percent of the mobile features evaluated) and online banking platforms, self-service technologies across branch/ATM network (e.g., Barclays offers card-less cash withdrawal, bill payments, and check deposits through ATMs), and meaningful social media content.
  4. Higher business growth: Wider adoption of digital banking channels, superior efficiency ratios, adoption of an open banking ecosystem, and innovative product offerings, particularly through the wider set of APIs they offer.

European Banking Leaders

These leaders have re-designed their customer journey to adapt to external disruptions by:

  1. Calibrating current customer satisfaction: Formulating a unique customer engagement model based on insights gained on each customer’s digital readiness and adoption.
  2. Benchmarking current digital maturity with best-in-class enterprises: Evaluating their digital channel maturity and customer satisfaction scores against best-in-class peers, and then tailoring their digital strategy to bridge the gap in their organization’s vision of the customer experience.
  3. Redesigning the customer experience: Incorporating human-centric design principles to address customers’ stated and unstated requirements and desires.
  4. Optimizing their channel strategy: Developing a comprehensive channel strategy to drive customer adoption and acquisition, and changing the business model to deliver digital experiences.
  5. Innovative product offerings: Offering personal finance management features through digital channels that are intuitive and simple for users. Other services include payments through multiple messaging and social media channels, and intelligent voice-based payment solutions.

To learn more about the characteristics of Europe’s digital banking leaders, and what sets them apart from the others, see our report: Digital Effectiveness in Retail Banking | Focus on Banks in the UK and Europe: Identifying Digital Banking Leaders in the Open Banking Era.