How telematics data is changing pricing of motor insurance cover

When Anjali Harkoo received Sh6,000 from her motor insurer at the beginning of this year, it came as a pleasant surprise.

The money, sent to her via M-Pesa by Heritage Insurance, was a cashback amount calculated on the total premium she had paid the previous year to service a comprehensive insurance policy for her vehicle.

“Nothing had prepared me for this. True, I had signed up for their Auto Correct cover when renewing my motor cover the previous year, and received information about how I could redeem my “good driving” loyalty points at some outlets, but had not thought much of it,” said Ms Harkoo.

“This cashback has fundamentally changed my initial notion of insurers as net takers who only become useful when the insured risk occurs.”

To her, the receipt of the cashback validated the pitch that had been made to her when she was renewing her cover, an annual constitutional that she had never thought much of previously.

Innovation

Heritage Insurance pioneered telematics-based motor insurance in Kenya when it launched its Auto Correct product in 2018. It was a watershed moment in an industry that has long had to live with an unsavory reputation as a backwater when it comes to innovation.

The fact that Kenyans only buy and regularly use insurance products when the law insists on it (motor vehicle insurance) or when their employment perks include it (medical insurance), has birthed one of the lowest insurance penetration rates in Africa at under three per cent.

Equally to blame is the overriding notion that insurance is a generic product. The fact that there is little differentiation on the shelf, when it comes to the potency of the offering, mechanics of servicing it and even pricing has translated into very few takers.

Combining both the Internet of Things (IoT) and Big Data as its key innovation levers, telematics-based motor insurance is already changing the way motor insurance is priced and consumed in the world.

A telematics device is fitted into the car the moment the motor insurance policy becomes active. The device is able to send data, in real time, to a central database on how each vehicle is driven.

The data that is collected evaluates each driver’s execution of the following key driving functions: braking, acceleration and cornering. The information is evaluated over time and each driver is allocated points based on performance.

Naturally, the longer one drives the vehicle without any braking, cornering or acceleration incident, the higher the score.

To incentivise good driver behaviour, Heritage Insurance has developed two types of rewards. For starters, good driving is rewarded with loyalty points that have an equivalent in Kenya shillings. The points are redeemable at a number of outlets.

Secondly, drivers who achieve a certain threshold score and above are entitled to a refund of a portion of the premium paid during the year, what the insurer is calling a cashback. This payout, which can be as high as 15 per cent of the annual premium, depends on the value of the policy and the hours of incident-free driving achieved.

But the advantages of telematics-based motor insurance do not just start and end with its ability to use data to reward good driving practice. The innovation also comes in handy when an insured risk occurs, as it helps in hastening the claims process.

“When the accident happened, it never crossed my mind that my car was actually on Auto Correct. It therefore caught me by surprise that in three minutes, Heritage was calling me to find out what had happened to me, asking if I was injured and what was the state of my car,” says another of the insurer’s clients, Lillian Mumbi.

“I was pleasantly surprised and this actually helped to calm me down. The attendant on the line was reassuring and offered lots of advice on what to do. I definitely would recommend this product to any motorist.”

In a category (motor vehicle insurance) in which the Association of Kenya Insurers (AKI) estimates about 40 per cent of all claims to be fraudulent, the automatic and immediate authentication of an accident through the telematics device is a useful functionality.

The product also has a mobile app interface with the client, through which one can get real-time feedback on driving, trip details and location of vehicle. This data is not accessible to Heritage, and comes in handy should the unit be stolen.

There is the case of a client who used the real time location updates on her Auto Correct mobile app, and worked with the police to retrieve her stolen vehicle within a few hours after the incident.

“To date, my husband and I hardly believe our luck in recovering our stolen vehicle within such a short time. We are also happy with the settlement of our claim on the mechanical repair of the car following damages incurred during the theft,” says Gloria Karissa.

“We are thankful that the telematics device came through for us in the most unexpected of ways.”

Changing models

As telematics-based motor vehicle insurance products get a toehold in the market, it seems that previous value-based pricing models are being fundamentally challenged. There is a move from mass, generic pricing to individual pricing.

Just as is happening in the banking sector through the use of credit scoring to determine the price of money (interest), it would appear that the fixing of premiums on a motor vehicle insurance policy will now be a function of not just the value of the unit, but also the behaviour of the driver.