Is telematics a double-edged sword for insurance agents?

Is telematics a double-edged sword for insurance agents?

Is telematics a double-edged sword for insurance agents? Roughly 18 to 20 insurance carriers currently offer telematics, or usage-based insurance capabilities, to their policyholders. The devices record driving behavior, which in theory can be used to better predict individual auto insurance premiums. And while a January 2014 survey from Deloitte found roughly half of the driving population views UBI negatively, the industry analyst concedes “the genie is out of the bottle.”

“The industry as a whole is not likely to go back to relying only on its traditional methods of assessing auto risks,” Deloitte said in an April report on telematics.

The report highlighted that while UBI is still in a developmental stage, it is likely demand for telematics and the discount it provides will grow. Younger drivers are by far the most likely to adopt telematics, Deloitte found, and as such, may influence the future market.  

For insurance producers, perhaps the most pressing issue associated with commercial UBI is how it may affect their viability in an already challenging, commoditized market. According to Deloitte analyst John Lucker, telematics may bring both challenges and benefits to producers.

The downside to telematics? Potential decreased commissions.

“A lot of agents are paid as a percentage of premium, so when a broad program like this is essentially reducing aggregate premium, it could take money out of the pocket of an agent,” Lucker told Insurance Business. “As such, insurance companies need to try to make the agent as whole as they possibly can, otherwise there’s a risk the agent won’t be as supportive of the push to direct customers toward telematics.”

Lucker said there were numerous ways insurers may work around this issue. First, ensuring agents are compensated based on previous premiums temporarily may support both telematics and the agent. Second, decreasing commission on a year-by-year basis may ensure agents “don’t go over a cliff from the commission perspective.”

While lower pay in an increasingly difficult environment is never welcome, there may be a bright side to telematics. According to Lucker, the use of telematics actually “de-commoditizes” the auto insurance product thanks to new, value-added services attached to UBI.

For example, drivers are alerted in real time if they speed or take corners too fast. Some telematics devices also allow for “geo-fencing,” a system that sends alerts when the driver goes beyond a certain pre-designated area. This is especially useful for parents with teenage drivers.

 Finally, commercial offers can be sent to the driver for locations in their vicinity, offering discounts at a nearby coffee shop or restaurant.

In the near-term, Deloitte expects telematics to actually be a bifurcating force in the market. While many carriers are adopting the technology, there will be some—pushed by demand from policyholders concerned over privacy issue—that stick to traditional underwriting factors in assessing rates.

Currently, careful drivers, concerned parents and policyholders with one or two accidents on their driving records may be good candidates for UBI, Lucker said.

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  • wa 4/25/2014 11:54:54 AM
    After 30 yrs in the P&C business dont see the co's stepping up to provide to offer more commision.
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  • S. Wood 4/25/2014 12:38:56 PM
    Your conclusion that "...when a broad program like this essentially reduces aggregate premium it would take money out of an agent's pocket" is wrong. For example, the state of CA DMV did a study and found that the average driver in CA drove about 12500miles a year. However, those same "average" people almost always understate this figure when buying insurance. "How far do you drive per year?" " Oh, about 7000 miles a year.", these devices are being used effectively to INCREASE aggregate insurance premiums by acquiring accurate information about a critical indicator of the probability of having a loss. See Allied Insurance's new Smartcar program. All it does is record miles driven and nothing else. It is free and clients love the idea. And believe me, Allied really loves it. And as an agent I will love it as eventually premiums will go up for those that in the past were let's say less than truthful about the miles they drove per year. And they will go down for those who drive less. But the net impact will be an overall increase in premium volume as the vast majority of drivers who drive higher amounts of miles understate how much they drive because they have learned mostly thru unscrupulous agents that its a way to pay less for their insurance.
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  • Steve 4/1/2015 11:03:54 AM
    Sometimes I wonder if the articles written for ibamag exist just to make me mad. It's ridiculous to think agents would oppose telematics because of lower prices on auto insurance. I could care less what a person pays, as long as they stay with our agency for the long haul.
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