Telematics insurance, market disruption and control of data

Insurers may be alarmed by the prospect of car makers seeking to 'own' the relationship with motor insurance customers through opportunities presented by telematics technology. But in the context of Insure the Box, such alarm may be overstated. Insure the Box technology will only be fitted to new Toyota vehicles. That leaves a market of millions of existing Toyota cars already on UK roads without the pre-existing insurer tie-up. In short there is still a huge untapped market for insurers offering app-based telematics to capture a significant portion of the data available for themselves.

Even if the day arrives when all new vehicles are fitted with manufacturer-owned systems this is not necessarily a threat to insurers. With the right agreements in place there will still be opportunities. Car insurance is a legal requirement in Europe, so manufactures will have to allow insurers access to the data. Indeed many manufacturers already have established relationships with insurers. At BMW it is Allianz and at Citroen it is UK Insurance Limited. BMW’s partnership with Allianz, which has been operating a since 2009, now extends into 27 markets.

What insurers need to remain focused on is the ownership of the data that telematics systems generate and where they do not own it directly ensuring they have the ability to access and use it in a way that is revenue-enhancing for their business. Restrictions over the use of data can hamper the benefit that insurers get, and permission to use data more widely can offer commercial opportunities.

Regulators, though, are paying close attention to privacy and transparency requirements that govern the use of data. In the UK, the Association of British Insurers (ABI) guidelines are quite clear: those collecting data through telematics devices, regardless of what type of device is used to collect the data, have to spell out clearly to all drivers what information will be collected and how it will be used. This, of course, applies the EU-wide data protection legal standards to data generated through black boxes. Different attitudes to the use of data by insurers are emerging. In Italy, which has a 35% penetration of in-car devices, insurers are allowed to access the data to assign fault after an accident. In Germany, the Auto Industry Association last year hosted a roundtable of manufacturers, insurers and lawyers to draw up a policy on how telematics data can be used. The Germans are now pushing for their view – that the data first and foremost belongs to the driver and should not be sold on to advertisers and other third parties – to be adopted by both the EU and United Nations.

"Ultimately the person who generates the data, the driver, should have the final say over how it is used," is how Martin Stadler, senior counsel to Allianz, summed up the German view to Reuters last month.

If more insurers are to capitalise on the opportunities that telematics-linked insurance products present, they need to understand not only the extent to which transparency and privacy legal requirements govern their use of data but also how to structure arrangements to commercially exploit the underlying data.  

Any strategy to claim proprietary rights over telematics datasets and/or databases should take into account the data portability rules currently being discussed as part of the EU-wide data protection reform agenda.

Under these proposed rules, owners of the rights to exploit data, be they in this context motor manufacturer, telematics technology provider or insurer, will have to ensure not only that they have the correct authorities in place from the driver to use the data they produce, but also that they can hand over the data they possess on an individual in a usable transferable format, These rules are designed to allow customers to switch service providers with ease.

Factoring these rules in to a telematics-led investment strategy could mean that an insurer views the value of a data ownership or licensing arrangement very differently from a scenario where customer data is more difficult to transfer.   

Then there are also the customer concerns. It seems that many customers are still convinced that the information collected on their driving habits will not be commercially exploited without their permission by manufacturers and insurers. A quick glance at the comments section of any mainstream media article on telematics is enough to illustrate the gulf in trust which must be bridged if telematics is really going to take off. Yes, the systems can produce savings – Insure the Box puts these at an average of £620 per policy for UK motorists – but many drivers will not see this as enough compensation for the widespread commercial exploitation of their data.

There is clearly still a lot to play for in the drive to benefit from the abundance of data now available through telematics, and this week’s move by Toyota just signals that there will be more players entering the fray. It remains the case though that it is certainty over how and by whom data generated by a telematics device can be used and shared that is important. And at the end of the day that comes back down to how well agreements – be they box/app owner-to-insurer, or insurer-to-driver - are drafted.

John Salmon is a financial services expert at Pinsent Masons, the law firm behind Out-Law.com