After seeing success supplying telematics boxes to its car insurance customers, RSA Insurance Group is applying similar technology to its home and pet products. Andrew Hobbs spoke to Global Telematics Partnering Director Paul Middle about how these innovative data streams are enabling new customer value propositions, and how emerging technologies are creating opportunities and challenges for insurers.
Internet of Business: RSA’s telematics-based products have proved popular in the automotive insurance space, particularly with young drivers. How are you applying what you’ve learnt to home insurance?
Paul Middle: “We’ve been looking at the connected home for around two and half years, with an eye on what we can use to help us present propositions that will be of more value to the customer and, at the same time, mitigate against some of the claims costs that we see today. And our biggest claims cost is escape of water, by some way.
“So, a couple of years ago, we started to look around the technology market to see what sorts of devices were out there and whether they could help us mitigate against some of those costs. We’ve gone down this route because we know we need to fund the proposition that goes out to customers in some way.
“We’ve done this by eliminating the claims cost to fund the added data and technology expenses, so that ultimately we can still offer products at a price that a customer would see today in a standard, non-connected insurance policy. I think that’s important because insurance predominantly gets distributed through price aggregation in the UK, and I think it’s going to carry on that way for some time.
“So we looked at our claims experience and said, ‘escape water is a big problem’, lets look at the technology market and see what technologies out there. But we often bumped into the same problem, which was the high cost of the solution.
“Many of the shut-off valves at that time ranged from £400 to £1,000. So, if we were going to present a cost to the customer that looked the same as other policies that were available, there was simply no way that we would be able to carry that cost, even if we retained the customer for years.
“Clearly we could have got the customer to pay for it but we’ve always felt that that was less likely to lead to any sort of genuine volume. Customers generally aren’t that interested in escape water.
“Then we came across the guys at HomeServe Labs, who have developed a device called LeakBot – a self-installed leak-detection device. While it may not include a shut-off valve, it doesn’t require an engineer to come out and install it. It can just be sent out in the post and a customer clips it on to the water pipe and it monitors the temperature of the pipe. When it sees a difference in the temperature of the pipe and the temperature of the room it knows water is flowing and can alert you when a leak may be occurring.
“LeakBot was a fraction of the price that we’d seen elsewhere, and after testing it with customers, we were satisfied that it could do the job.
“We’re now in a position where we have to work out what a proposition might look like. What do we do with this great bit of technology? We’re taking a different approach to some insurers, who often look at connected home products as purely added value products.
So the aim isn’t to get new data streams, it’s more about cost mitigation?
“The data clearly has a lot of value and in that scenario we would get data from LeakBot and that would give us a whole bunch of learnings, but to build up any sizable dataset is going to take some time. The benefits in that data will come but it’s certainly not something we’ll be able to gain value from in the short term”
Are you looking to take a similar approach to other connected home products, such as smart door bells and fire alarms?
“We haven’t gone there yet because we’ve focused on mitigation of claims. The additional benefits that things like fire and theft products could bring to the underwriting result are probably limited, given that people already have smoke and security alarms and they are often connected to the fire brigade or the police, and, to be fair, they already do a pretty good job.
“So we thought, ‘what’s the area in the home that is less protected traditionally?’ Smoke alarms have to be fitted and, while cameras don’t, it’s questionable how many insurance benefits there are in having a smart door bell, door lock, or window sensors. Yes, I’m sure there will be but the business case is much harder to create, versus cutting out a huge amount of escape water costs.”
What about beyond the home, in connected vehicle insurance?
“We’ve got one of the biggest young driver telematics products out there at the moment, which is More Than Smart Wheels, which does very well. We think we’re probably writing more telematics products today than anyone else on the market.
“It’s mostly young drivers, 17-25 year-olds. Depending on your driving behaviour, you can earn additional rewards throughout the course of the year, such as money back. We can also give you a much more accurate renewal quote because we’ll know a lot more about you as a driver. So, if you’re a good driver, we should be able to give you a very competitive quote in the second year.
“It’s obviously restrictive compared to a standard policy because you’re being monitored and you’re being priced on the way that you drive, versus how you’ve answered a bunch of questions when you’ve taken the policy out. And we’ll cancel policies when we see behaviour that we don’t like.
“As a young person it’s great, as it gives you a much more cost-effective way to get on the road, but, at the same time, you’ve got to behave yourself.
“One of the reasons it works so well is that we traditionally find it really difficult to price young drivers as there’s no past experience. In terms of the data, they all look the same – they’re 17 or 18 and they’re driving similar cars.
“It’s market knowledge that young drivers cause a lot more accidents, so without telematics we’re just going to price everyone in the same way. We won’t know whether you’re a good driver or a bad driver, so we’ll just assume that you’re bad, whereas telematics gives us the opportunity to identify the good ones and price them appropriately. We can also avoid paying out claims costs for the worst drivers because we if we think claims will come we’ll take you off cover before that incident happens.
“However, as drivers get older the premiums drop off a cliff, so it’s harder to make telematics economically viable. The savings on a standard premium is likely not going to be enough to want to engage with a telematics product.”
With all these new data streams, in both the home and connected cars, are you increasingly turning to AI to analyse this data, or are you still reliant on more traditional models?
“We largely still rely on traditional models. With telematics, for example, we also rely on our telematics partners to help us with that data. Then we’ve got our data scientists, pricing teams and data analytics personnel, and they’ll be running their eyes over all the telematics data that we get.
“They don’t get access to the raw data. We’ve never wanted to. Historically, that’s been because we couldn’t handle the sheer volume that comes out of thousands of telematics boxes. We’ll quite happily let our telematics partner collect it, manage it and then pass on what might be interesting to us.
“There hasn’t been the need for us to invest in some of those capabilities in order to do the analysis on a large chunk of data but that could be a future space that we’ll move into, but there hasn’t been the business case for us to do so yet.
“We take a partnering route because if we had to create all these capabilities in-house we’d be facing a huge investment requirement and we know we need to act quickly. Relying on partners often allows you to move much faster, particularly partners in this space, who are more agile than the likes of a 310 year-old insurer, like we are.”
RSA recently released a paper on autonomous vehicles and how they’ll affect the insurance landscape. What’s your take on this?
“We were the insurance partner for a government-funded project autonomous vehicle research project, called GATEway. One of the reasons we partnered on it was that we could learn more about the opportunities autonomous vehicles could present us with, and better understand the technology, its capabilities, and what we would have to think about if we started to cover these kinds of vehicles.
“The requirement of the car insurer will change in the future. As and when we get to a space where there’s more fully autonomous vehicles on the road, the risk will change completely.”
And you have to answer difficult questions around liability too?
“Absolutely. What we need to think about, in terms of coverage – the part we play in providing for that vehicle, or for somebody’s journey – is changing. Actually, it might be that we’ll no longer be insuring the metal, the computer on wheels, and instead take on cover for the person who’s having to travel in that vehicle. So that will be interesting to take forward.”
What’s currently going on behind the scenes at RSA when it comes to exploring emerging technologies and their place in insurance?
“There’s a world of opportunity in utilising new technologies for customer value, operational benefits, data management, and intelligence insights. Things like blockchain and AI hold huge potential, but it’s about working out our strategic direction and, therefore, which parts of that we need to invest in and understand better.
“Clearly our IT and IS departments are crawling all over blockchain. We’ve got our claims teams focused on technology that’s enabling better claims experiences and management. Our digital teams are looking at all the capabilities around AI, and accelerator projects are pursuing new tech opportunities, before putting benefits back into the operational team.
“Then you’ve us is telematics, focused very much on the customer proposition. We’re doing a lot on pet insurance at the moment. We invested in a company called PitPat, who have an activity monitor for dogs.
Often, a dog ends up being taken to the vet because it’s overweight, and claims costs have continued to rise because of vet fees increasing. So, we looked at Vitality, who have changed the way an insurer might approach a life insurance product. Rather than just being there and paying out claims when somebody has to visit the hospital, they’re doing something to address the core issues, such as people increasingly becoming overweight.
“We looked at this, feeling that pet insurance follows the same principles as health insurance. If we could get people to exercise their dogs more effectively it would be great for the owner, the dog, and for us.
“We’ve been working closely with PitPat and distributing a number of those devices to our customers to gather data and work out what a proposition that incorporates that technology might look like, much like with LeakBot. Asking, how do we translate that great technology into something that delivers all those benefits to us, the customer, and ultimately, in this case, to the dog.”