Consumers with good driving habits could be rewarded with lower premiums if local insurance companies start using technologies that can track and collect data on driver behaviour.
These technologies, which are already available in Malaysia, can collect a variety of data. They include speed, distance, travelling hours and the number of times the driver steps on the brake, makes a sharp turn and harshly accelerates.
Consumers with good driving behaviours are associated with lower risk and can be offered a lower premium, says Gerard Lim, CEO of Atilze Digital Sdn Bhd. The company, a wholly-owned subsidiary of Yen Global Bhd, is a provider of Internet of Things (IoT) devices, solutions and applications.
Insurers have been looking at ways to offer innovative motor insurance products since Bank Negara Malaysia introduced its detariffication initiative. This includes using risk-based pricing, or making use of a customer’s risk profile to determine the price of the product.
The detariffication, which is expected to be implemented in phases starting in July and be completed by 2019, allows insurers to offer lower or higher premiums for their motor insurance products instead of applying the same premium to all policyholders. Hence, electronic gadgets that can track and collect data on driver behaviour will be an important part of this process.
“These gadgets will enable insurers to reduce motor insurance claims and improve their bottom line. This is how they can reward consumers with good driving behaviours with lower premiums,” says Lim.
Recording the way you drive
In developed countries, insurance companies are already using equipment in cars to collect data. According to Lim, most of the cars manufactured in the mid-1990s came equipped with an electronic control unit (ECU) — an embedded system that controls one or more of the electrical systems or subsystems in a vehicle.
Back then, technicians at car service centres used the ECU to read the internal data provided by the vehicle, understand its condition and fix the problems. For race cars, they also used it to fine-tune the engine and improve its performance.
Today, with IoT-enabled devices, the ECU data can be transmitted in real time to the cloud. “Instead of using a cable to manually connect the ECU to a computer, we can now connect it to the telematics and transmit real-time data to the cloud,” says Lim.
The telematics is a small box containing a 3G or 4G SIM card that allows it to transmit data to the cloud via the internet. The device is equipped with a GPS system, enabling users to track the location, speed and travelling distance of the car, and a G-force sensor and gyroscope, which allows it detect accidents. Real-time data on the car engine and other components can also be transmitted through the telematics.
Car owners have the option of installing the telematics in their vehicles, says Lim. “With this in place, insurers can collect valuable data over a period of time.”
Scoring system to evaluate risks
After the data is collected, it needs to be compiled with a scoring system that measures the drivers’ risks, says Syed Ahmad Fuqaha Syed Agil, CEO of Pixelated Sdn Bhd, which is better known as Katsana Advanced Telematics.
“The raw data does not show you anything. That is why we came out with a proprietary scoring system that allows fleet companies to understand the behaviour of their drivers and find a solution to manage it,” he says.
Katsana provides GPS tracking equipment and services to taxi and bus companies. Its proprietary scoring system has more than 45 parameters for its clients to calculate the risks of their drivers and understand their driving behaviour. Its clients can customise the weightage of each parameter and come out with their own algorithm to evaluate their drivers’ risks.
“Insurance companies can either use our algorithm or develop their own. They can also set their own parameters,” says Syed Ahmad Fuqaha.
By knowing drivers’ risk levels, insurers can choose to reward them in different ways to make their motor insurance products more attractive and encourage their policyholders to drive safely.
“For example, insurance companies can give their policyholders a cash reward, say RM300 a year. This figure can be displayed on an app after they have subscribed to the product. However, if the policyholder drives recklessly, his score drops to a certain level and the cash reward is deducted,” he says.
Forming partnerships
At the time of writing, Atilze and Katsana were in discussions with insurance companies and car manufacturers, among others, to establish partnerships and distribute motor insurance products that require the use of electronic gadgets.
“We have been negotiating with a few insurance companies to enable them to come out with such products. But at the moment, it is more for commercial vehicles such as taxis, buses and trucks,” says Syed Ahmad Fuqaha.
Meanwhile, Atilze has formed a partnership with a German car maker to distribute electronic gadgets and provide data to enhance its after-sales services. “The people who buy a certain car model from the company will be given the option to install these gadgets. The buyers could possibly be rewarded with lower motor insurance premiums and better after-sales service if they agree to share their information with the company,” says Lim.
There are other benefits besides lower premiums, says Syed Ahmad Fuqaha. For instance, the electronic gadgets include a GPS tracking system, which allows drivers to locate their cars and retrieve them if they have been stolen. “The driver can share the real-time location of the car with the police via WhatsApp so that they can hunt down the perpetrators and retrieve the car,” he adds.
In the past three years, there have been 57 cases of car theft involving the company’s clients. Of this, 56 cars were returned to the owners, says Syed Ahmad Fuqaha.
Drivers will have better quality of service if they install these electronic gadgets in their cars, says Lim. “For instance, an insurance company or a third party can call to check on the driver if the G-force number (a metric that measures the force of impact) on its system spikes, which indicates that the car was most probably in an accident. The company can take the initiative and assist the driver immediately, such as arranging a tow truck.”
The electronic gadgets will also allow service centres to monitor the battery level of a car and inform the owner when it is time to change the battery, he says. In short, the gadgets are able to identify problems in the car before they occur.
Will it take off?
Despite these benefits, both Lim and Syed Ahmad Fuqaha say it will take time for these new motor insurance products to take off in Malaysia.
There are several issues that people will consider before they agree to install these gadgets in their cars, says Syed Ahmad Fuqaha. And the first of these is privacy.
He says the public generally feels insecure about giving their data to a third-party company. “They will most likely be worried about the data the others will get without them knowing, instead of thinking about the benefits.”
Transparency is key, says Lim. Insurance companies should make it very clear to their clients and tell them what data they are collecting. “Insurers can provide them with a legal document listing all the data that will be collected over time and have their consent.”
Insurance companies should also be transparent in terms of how their algorithm works and how the premium is decided, says Syed Ahmad Fuqaha, adding that cyber security is another concern.
He says Katsana adheres to the Personal Data Protection Act 2010 and does not share personal information, such as home addresses, with third parties. Only general data are shared for scoring purposes.
“It will take time for [such motor insurance products] to take off. It will probably take off faster in the commercial vehicle space,” says Syed Ahmad Fuqaha.
Lim says the concept of installing electronic gadgets in non-commercial cars is still new in Malaysia compared with developed countries such as the US. “The challenge is probably to convince their clients about the benefits of installing these gadgets,” he adds.
By comparison, fleet companies that deploy commercial vehicles such as taxis and buses are expected to accept these gadgets faster, says Lim. Besides lower premiums, the gadgets will help them reduce operating costs and increase profits by monitoring the condition of their fleet and the behaviours of their drivers.
“They can check to see if their vehicles are idle (the engine is on, but the vehicle is not moving) for a long period of time. They can also monitor drivers’ behaviour to see if they are driving recklessly, which can cause accidents and incur more cost for the company. They will also suffer from opportunity loss if accidents happen and the vehicles have to stay in the workshop for a long time,” he says.
In some developed countries, motor insurance premiums can be slashed up to 20% if the policyholders agree to install electronic gadgets in their vehicles. Companies in the US have already introduced usage-based and tracking-based insurance policies. According to Quartz Media, auto insurance companies such as Progressive Insurance provide tracking-based insurance linked with the Internet of Things. Meanwhile, a Capgemini report says about 36% of motor insurance companies are expected to adopt telematics/usage-based insurance by 2020.
GADGETS
Onboard diagnostic (OBD) cable
The OBD cable functions like a Universal Serial Bus (USB) port, says Lim. One end of the cable is linked to the telematics while the other end is inserted into the electronic control unit (ECU), which is placed under the dashboard of the car. When the devices are linked, the data from the car can be sent to the telematics and the cloud.
“Almost every car has an ECU without many people knowing. If you have the chance to observe how the mechanics and technicians in the service centre work, you will see them insert the OBD [cable] into the ECU and all data will show up on the screen in their hands,” he says.
Telematics
This small box contains a 3G or 4G SIM card and devices such as a GPS tracker, G-force sensor and gyroscope. The equipment receives data from the ECU and transmits it to the Internet of Things service provider’s cloud system in real time. The data mainly includes location, driving hours, distance and harsh acceleration and braking.
Advanced Driver Assistance System (ADAS)
This more sophisticated telematics is mainly used by commercial vehicles such as taxis and buses, says Lim. Besides the data that a generic telematics collects, the ADAS also collects the data of fleet drivers who follow the vehicle in front of them too closely or change lanes without signalling.
“The system will start to beep if the driver is too close to the vehicle in front or does not turn on the indicator when changing lanes,” he says. The beeping, provided as a reminder to the driver, is the main feature of this gadget.
So, if the driver drives recklessly, the gadget will keep beeping and force him to change his behaviour, says Lim. “It is like someone constantly nagging you. Drive safely if you do not want to be nagged,” he laughs.
The gadget also helps to keep commercial vehicle drivers awake, especially those who drive long distances without resting and could fall asleep while driving. It has been proved that it helps reduce road accidents globally, says Lim.
Save by subscribing to us for your print and/or digital copy.
P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.