Risk-reducing telematics come with costsPosted On: Apr. 1, 2022 12:00 AM CST
Telematics have become a more integral part of commercial vehicle fleet risk management, helping to lower incident frequencies, but they can also raise repair and replacement costs.
The advanced hardware, however, is only the front end of the story, as prudent management of the data trove produced by telematics systems is imperative for effective risk management, sources say.
Telematics hardware, such as sensors, cameras and other data collection devices, merges telecommunications and informatics and enables information to be shared wirelessly.
Telematics “can be very useful” and are becoming more common in large fleets, said Dennis McGuire, casualty underwriting director in Des Moines, Iowa, for Nationwide Insurance Inc.
“As part of an overall fleet program, more businesses are utilizing telematics data to evaluate and improve driving behavior and fleet safety,” said Sergio Cartagena, assistant vice president, senior underwriting manager, Global Risk Solutions, for Liberty Mutual Insurance Co.
The technology generates a vast amount of data measuring a wide variety of attributes, which requires business owners and fleet managers to have a sound plan to determine what data is most useful, how it will be collected and how it will be used, Mr. McGuire said.
Knowing how to transform the data into information that can be incorporated into action plans is an important part of a successful telematics program, Mr. Cartagena said.
“Installing this technology is not the answer to everything. You must manage the data and the drivers,” said Nicole McMurtry, national transportation vertical leader in Oak Brook, Illinois, for USI Insurance Services LLC. Failing to act on telematics data, such as hard braking or lane departure notices, could indicate negligence on the part of a fleet manager, she said.
While specific technologies reduce accident rates, the cost of the technology can add to repair costs, data shows.
Physical damage claims payments for vehicles equipped with forward collision warning systems were on average $117 higher than for those without the system, according to a study from the Insurance Institute for Highway Safety and Highway Loss Data Institute. That same study, however, shows decreases in frequency for loss incidents and claim rates when a vehicle is equipped with forward collision warning.
“It does cost more,” Ms. McMurtry said, adding, however, that from a liability standpoint, telematics information can help manage and mitigate claims.
Telematics have proven useful in exonerating drivers who were not at fault in an accident, said Matt Merna, New York-based senior vice president and Chubb Group division president, North America major accounts, for Chubb Ltd.
Telematics are “certainly all helpful from a loss reduction standpoint,” but they inflate both repair costs and times, Mr. McGuire said. There are more parts in vehicles equipped with telematics, and in some cases component supply can be limited.
In addition to the safety gains shown in the study, telematics users are viewed more favorably by underwriters, sources said.
Cars and trucks equipped with telematics cost more, but “underwriters like safety features in vehicles,” said David Carlson, U.S. automotive and manufacturing industry practice leader in Cleveland for Marsh LLC.
“In general, underwriters like to see a newer fleet where the technology is most likely to be available,” said Nationwide’s Mr. McGuire.
Better and more comprehensive data can also help a business owner provide more complete information to underwriters during the application process. “Completing applications robustly. That’s where technology and telematics helps,” said James Auden, Chicago-based managing director of insurance at Fitch Ratings Inc.
Sources generally agree that although telematics programs should be rolled out by management with great transparency for drivers and workers, the technology’s growing use means employees should not be surprised to find telematics onboard, especially amid rising industry adoption rates.
Mr. Auden said that concerns over privacy and stewardship of the data persist against the backdrop of rising incidences of data breaches and other cyber incidents.
Katie Wildman, a risk advisor in alternative risk transfer in McKinney, Texas, for BevCap Management LLC, said some 75% of the wholesale distributors in one of the captives she manages have implemented telematics “and not one has regretted doing so,” she said.
Fleet managers and business owners consider telematics one of their best risk management tools, and none have removed equipment because it wasn’t working out or providing benefits. While upfront costs vary, users believe the systems pay for themselves.
While return-on-investment analyses are still being evaluated, available data indicates telematics can boost communication, potentially reduce the number of incidents and claims filed, improve safety and productivity, and cut downtime — “all of which may lead to better outcomes for a company’s safety program,” Mr. Merna said.
Drivers and employees, after some initial resistance, embrace telematics once they are shown the tools can be used to reward improved driving behavior and bolster a liability defense in the case of an incident, Ms. Wildman said.
Safety design technology often expensive to repair, maintain
Automotive technology, specifically safety technology, is often thought of as sensors and computerized systems designed to avoid collisions.
Safety technology, though, also involves vehicle design and engineering, such as adding so-called “crumple zones” and designing lighter-weight vehicles for environmental reasons, which also enhance safety, albeit sometimes at the cost of increased physical damage to a vehicle, sources say.
“Technology isn’t just electronics,” said David Carlson, Cleveland-based U.S. automotive and manufacturing industry practice leader for Marsh LLC.
When vehicles are lightened to meet emissions targets, stronger materials and components — such as newer “super steels” — are used.
“Steel can be very light and very strong,” Mr. Carlson said, adding that physical safety components continue to protect the occupants when electronics safety measures fail.
The U.S. Department of Energy says a 10% reduction in vehicle weight can result in a 6% to 8% fuel economy improvement. “Advanced materials are essential for boosting the fuel economy of modern automobiles while maintaining safety and performance,” the DOE says on its website, and it supports such efforts through its Vehicle Technologies Office.
Vehicles built with crumple zones, which are designed to absorb energy and protect passengers, often see extensive physical damage.
“A big part of the car needs to be replaced,” said James Auden, Chicago-based managing director of insurance at Fitch Ratings Inc. This can lead to increased parts and labor costs and sometimes longer repair times.
“Cars get totaled a lot more,” as well, Mr. Auden said.