Value, Not Discounts, Key to Commercial Lines Telematics

commercial insurance telematics

Over the past year, Octo has seen significant interest in telematics solutions for commercial auto insurance. As insurers start seeing results from their personal auto usage-based insurance programs, they look for new ways to leverage telematics technology. With half of the 13 million commercial vehicles in the US connected via telematics, bringing telematics to commercial auto is a logical next step.

Price-based competition in commercial auto insurance has been a major driver of increasing combined ratios over the past few years. Often in our discussions with insurers, we come to the same sticking point – with record high combined ratios, they cannot make the business case for offering significant discounts to their commercial customers in exchange for telematics data.
While cost is often the most critical buying criteria for commercial insurance, insurance products that add significant value for policyholders help insurers differentiate themselves in the market. For most companies, auto insurance represents just a small portion of their overall business insurance, minimizing the impact of discounts. Instead, commercial customers look for partners who can add value and help them improve their bottom line.

It is critical to a commercial telematics program’s success that this shifted focus – from discounted pricing to added value – be reflected in the design of your platform.

Octo’s solution

To maximize the value our insurance partners can offer their policyholders, Octo built a commercial insurance telematics solution that adds a robust fleet management tool to all the services and analytics we offer across our platform.

Octo’s commercial lines platform offers traditional telematics capabilities such as driver behavior monitoring, driver feedback, time and location based services, crash detection, and emergency response services enablement. Octo Fleet adds new fleet-focused capabilities such as ELD reporting, stolen vehicle recovery, maintenance and repair tools, and enhanced trend reporting. In addition, our fleet management console allows fleet managers to see both individual driver and aggregate fleet reports to monitor and improve fleet performance.

The value to your customers

So how does a telematics tool like Octo Fleet help insurers add value for their customers? Fleet telematics programs have been shown to help companies:

  • Reduce their total cost of vehicle ownership – Telematics can reduce a fleet’s total cost of ownership (TCO) by as much as 15% through decreased fuel, maintenance, insurance, damage, and rental vehicle costs. Fuel costs – accounting for as much as 25% of total fleet costs – often fall by more than 20%. When telematics is offered through insurers, the cost of fleet management systems are similarly avoided.
  • Improve their drivers’ safety – Vehicle accidents are the leading cause of work-related fatalities in the US, and more than 90% of these accidents are caused by human error. A US Department of Transportation study* showed commercial telematics programs with driver feedback can elicit significant improvement in driving behavior. In the study, medium-severity driving risk events were reduced by 55% and high-severity events were reduced by 60%.
  • Increase employee and asset productivity – Telematics provides a wealth of data and tools for fleet managers to use in optimizing their fleets. Telematics can be used to enhance maintenance schedules, optimize fleet routing, improve driver selection and training, and
  • Strengthen compliance – Compliance, both with state and federal laws and with company policies, is all about monitoring and reporting. Telematics excels in this area. Commercial telematics solutions like Octo Fleet provide capabilities for electronic logging of hours of service for the FMCSA ELD mandate, fuel efficiency tracking for IFTA, and vehicle location monitoring, curfews, and geofences for internal control purposes. Notifications and alerts, and customizable thresholds extend these functions for your commercial customers.

While these benefits come from services that are ancillary to the core commercial auto product, they have the ability to significantly impact your customers’ bottom line. With fleets facing significant year-over-year increases in vehicle, repair, maintenance, insurance, and employee costs, telematics-based fleet management tool help offset these cost pressures and boost profitability.

The value to insurance carriers

Adding value for your policyholders is admirable, but launching a new product only makes sense if it improves your outcomes.

So how does telematics add value for commercial insurers?

Octo Fleet primarily provides value for insurance carriers in three ways:

  • Improving risk pricing – Insurers have been using telematics to better understand risk for the past decade. In the US, this primarily takes the form of usage-based insurance for private passenger auto. These same driving behavior insights are just as for commercial auto but can also be used to provide feedback to fleet and risk managers, helping your customers take a data-driven approach to risk reduction.
  • Reducing claims costs – Telematics may be the most powerful tool insurers have to reduce claims costs. Since driving risk can be directly measured by insurers, premiums are often tied to measured driving risk, ensuring that fleet managers are incentivized to reduce risk. Feedback from driving behavior analysis helps improve driver safety, reducing the risk of a loss event by 20-30%. With the introduction of crash detection and instant first notice of loss capabilities, telematics has made it possible to streamline your claims process, drive down ancillary costs like towing and storage, and combat fraudulent claims.
  • Improving customer acquisition and retention – Telematics, and the tools it enables, serve as a primary differentiator in the market, helping your agents sell your products more effectively. Given the nature of telematics, the customers you attract are more likely to be committed to risk management. More importantly, telematics is critical for your customer retention efforts. In addition to creating loyalty through value-added services, telematics facilities more frequent interactions with your customers, which contributes to customer loyalty. More loyal customers“ stay longer, buy more, recommend the company to friends and family, and usually cost less to serve”, a Bain & Company analysis shows.
  • Commercial insurance telematics is a win-win for both you and your customers as it is an equal exchange of value-for-value. With the combined rations for commercial auto high and climbing, insurance telematics is the most effective way for you to address all the factors impacting your profitability.

    To learn more about commercial auto telematics, download our new white paper Top Four Benefits of Commercial Insurance Telematics or check out our commercial lines solution, Octo Fleet.

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