Telematics: the OBD port dongle thing, not Pay-As-You-Go on an App thing – can we stick a fork in it? Was it ever a “thing” in Canada anyway? Don’t get me wrong it’s made a lot of news in the last 4+ years, and several Canadian Insurers have taken a good go at it. It’s definitely made headway in the USA where user penetration is nearly 20%, Italy (17%) and South Africa (12%) while doing much of nothing in the UK (5%), Belgium (4%), Australia (3%), Spain (1%), Switzerland (1%) and finally Canada (4%).
So what gives? Why hasn’t Telematics taken off here, or elsewhere for that matter?
There’s certainly enough market offerings in Canada like Intact’s My Driving Discount, Desjardins Adjusto, and recently launched CAAs MyPace with big marketing budgets warranting a market penetration more significant than 4% after 4+ years.
Intact’s Loius Gagnon would say it’s been a “big success for them,” which I don’t doubt as it’s a reasonably profitable business in general. But is it one that can gain significant market share, replacing traditional Auto Insurance offerings today? Is it an offering that Canadian Insurers should be running out in 2019 to provide to prospective customers if they missed the boat before?
An Insurer recently asked me this question. Should they invest in Telematics in 2019? The answer to that question seems to be no, and here’s another reason why. Let’s first take a look at the countries that have relatively high Telematics penetration and countries that have relatively low penetration, according to McKinsey Consulting.
It’s fairly obvious where the penetration is happening. However, there could be a multitude of reasons as to why Canada seems to be a laggard, for example, red-tape bringing telematics to a standstill. I would argue though, that there is another more fundamental consumer psychology that is the real reason why pickup isn’t happening since it’s not because there is a lack of offerings out there as previously mentioned.
Take a look at this chart, prepared by Boston Consulting Group when they were surveying European citizens about GDPR, and the importance of Data Privacy.
What this chart shows is that Citizens of Germany, Spain and France put relatively greater importance on Personal Information privacy, especially when you take a look at items on the list like “Exact Location.” Interestingly, there seems to be a relationship between Telematics penetration and how much emphasis Citizens of those countries put on personal information Privacy. The countries where Telematics penetration is high seem to value Personal Information Privacy less – I know shocking right?
Although Canadians were not surveyed in the Boston Consulting report if you take a look at the most recent Canadian Privacy Commissioners Office Survey, Canadians do put extremely high importance on privacy.
As per the Privacy Commissioner Survey
“Canadians are concerned about how organizations collect their personal information, and their willingness to do business with a company would be affected by a company’s privacy practices and by the introduction of financial penalties for the misuse of personal information.”
Given everything that’s happened with Facebook’s Cambridge Analytica scandal, and frankly, the daily occurrences of Private Information being spilled all over the internet is there any wonder that Canadians are becoming more wary of giving away their information?
Telematics is attractive to a niche portion of the Canadian population where the cost-benefit of saving on their car insurance is worth the privacy intrusion. The savings must be so significant though that it overrides the fear of Privacy Loss, and I think that’s the rub.
As per the Privacy Commissioners Survey:
“The majority of Canadians are concerned about how their online personal information could be used by organizations. In addition, most mobile device users take precautions to protect their personal information.”
If an insurer wanted to get into Telematics today, it would have to invest several million in developing the pricing, marketing, sales & service and keep that up annually for a niche group of consumers that will consistently expect lower and lower Premiums, because by golly they’re giving up something pretty important to them to get those savings.
My wild prediction? Eventually, these users will become too expensive to maintain over five years, and you will see many Telematics offerings be replaced with Pay-As-You-Go or converted back to traditional standard Auto Policies – you know right before the Automated Car Apocalypse.
Disagree? Agree? Comment below!
Behzad has deep insurance industry experience, most recently co-founding BrokerLift, a SaaS eCommerce platform for Insurance companies and brokerages. In the past he led the development and launch of uBiz, a Commercial Insurance platform for Gore Mutual Insurance and the marketing strategy & analytics for InsuranceHunter, a digital insurance broker in partnership with Aviva Insurance. Behzad as an independent consultant has also advised some of the largest Insurance Brokers, Managing General Agents (MGA’s), and General Insurers on digital strategy and transformation, marketing and the digital insurance customer.
Today Behzad currently consults, develops & invests in innovative insurance ideas, independently, or along with established Insurance Companies that are looking for a digital edge.