The document discusses the evolution and potential of the insurance telematics market, predicting significant growth driven by consumer interest and technological advancements. It highlights the importance of strategic positioning for insurance companies to navigate uncertainties, emphasizing the need for partnerships and tailored customer offerings. Key recommendations include understanding customer needs, managing unique economic factors, and creating compelling value propositions to maintain competitiveness.

1. 2010 Insurance TelematicsConferenceChicago, September 13-14, 2010

2. A.T. Kearney IntroductionA.T. KearneyJoe ReifelPartnerGlobal management consultancy with offices in 37 countries across N. America, EU and AsiaPac

3. Recent engagements in Financial Services:

4. Business Strategy

5. Marketing, Sales and Channel Effectiveness

6. Customer Experience

7. Innovation and Product Development

8. Operational Excellence

9. Enterprise Transformation

10. Technology Strategy

11. Advised companies in the US and EU on telematics, from strategy through pilot and launchMike HalesPartner

12. Key QuestionsHow will the insurance telematics market evolve in the next 3-5 years? What are the implications for insurance companies?How should insurance companies position themselves for success in the face of uncertainty?

13. 0Potentially large and rapidly growing marketInsurance TelematicsMarket PotentialMigration of Telematics-Based Insurance OfferingStrong consumer appetite – 30%+ of auto customers indicate willingness to adopt UBI

14. Small base but rapid growth of UBIActive Safety Potential US market ~55M subscribersFrom Niche to Mass Market AppealBasedFeedback Customer Value PropositionBasedPerformance Current US market ~0.5M subscribersBasedUsage BasedSources: Berg Insight; Frost & Sullivan; Consumer data from US and EU insurers; Insurance Research Council; A.T. Kearney analysis

15. Significant value to customers and insurersCustomersInsurersReciprocityLower premiums

16. Growth

17. Quality of portfolioSafetyDriving improvement

18. Accident response

19. Lower loss ratioClaims ExperienceSpeed and convenience

20. Theft prevention

21. Lower loss ratioCustomer InteractionValue from insurer relationship

22. Retention

23. New markets and servicesUS focuses on reciprocity and safety, while EU also embraces Claims

24. Growth of usage-based insurance acceleratingDelaying FactorsGrowth Drivers+Consumers AffordabilityAwareness Acceptance +Privacy – “big brother”++TechnologyCheaperSmallerEmbeddedInfrastructure+Installation+++RegulatoryConsumer protectionInsurance regulationsEnvironmentalSafety++Telematics EcosystemOperating complexitySupplier ecosystem

25. Embedded device for safety, diagnostics & roadside assistance – extensible for UBIOEMs embedding telematicsFrom premium to mass market vehicles …… From optional to standard featureBy 2014, over 20% of US vehicles are likely to have embedded telematicsSource: 2009 Townsend report, Department of Transportation, Ward’s, Bureau of Economic Analysis, iSuppli , A.T. Kearney analysis

26. An increasingly robust ecosystemApplication & Service ProvidersContent Providers & AggregatorsAccess NetworkDevicesDistributionAutoHomeAlways Connected ConsumerPersonalWinners and gatekeepers in the new space are yet to be determined

27. UBI is approaching a tipping pointExperimentCapture AdvantageProtect ProfitabilityInsurer experience

28. Consumer appetite

29. Proven offering

30. Price and value

31. Mass market

32. Adverse selection

33. Switching costs

34. Embedded technology

35. Insurers forced to enter

36. Consumers compelled2014?TodayTipping Point15+ years~3-5 yearsWhen do you believe the industry will reach a tipping point?

37. Disintermediation – new entrants accelerate commoditization

38. Non-insurance players dominate gateway and relationship Customer OwnershipThe Insurance industry faces uncertaintiesIndustry profitability lower

39. Reduced rates for good drivers, but…

40. Potential limits on rate increases for risky drivers

41. Consumer backlash or poor experience impact brand

42. External data ownership reduces the ability to differentiateProfitability Brand Differentiation

43. Suggested strategy to win12534Manage Unique EconomicsEstablish Organizational Focus & StrategyBuild Holistic Offering by Target SegmentLeverageStrategic PartnershipsCreateCompelling Message & Experience

44. Have a plan … but be flexible12534Manage Unique EconomicsEstablishOrganizational Focus & StrategyBuild Holistic Offering by Target SegmentCreate Compelling Message & ExperienceLeverageStrategic PartnershipsCreate Strategy & Monitor the MarketCreate Organizational FocusDevelop point of view on the evolution of telematics – new product vs. industry disruptorCreate a flexible medium-term strategy, considering a portfolio of betsUnderstand and monitor the triggers that will impact your view on the market directionBuild dedicated team and executive sponsorship to enable speed to market

45. Adopt incubator approach to accelerate innovation and contain complexity

46. Align with core operations to enable smooth transitionTarget offering to customer segments12534Manage Unique EconomicsEstablishOrganizational Focus & StrategyBuild Holistic Offering by Target SegmentCreate Compelling Message & ExperienceLeverageStrategic PartnershipsTargetthe RightCustomer SegmentsDevelop Tailored OfferingsDefine telematics segments – consider need, size of market and likelihood of adoption

47. Target both new customers and existing customer base

48. Determine launch sequence and timing

49. Define the core product & service platform

50. Customize offerings and positioning by segment (e.g. safe drivers, teens)Enhance the customer’s perception of value12534Manage Unique EconomicsEstablishOrganizational Focus & StrategyBuild Holistic Offering by Target SegmentCreate Compelling Message & ExperienceLeverageStrategic PartnershipsDevelop Differentiated MessageConsistently Deliver Superior ExperienceConvey reciprocity (savings), safety and convenience

51. Create simple and sufficient message to enable customers to self-select

52. Understand and manage privacy concerns

53. Exploit telematics to deliver on key customer experience attributes

54. Proactively take advantage of new and more frequent interactions

55. Ensure controls are in place to deliver consistent CE across touchpointsCreate a partner portfolio strategy12534Manage Unique EconomicsEstablishOrganizational Focus & StrategyBuild Holistic Offering by Target SegmentCreate Compelling Message & ExperienceLeverage Strategic Partnerships… Structure and manage the relationship… Select the right partners …Understand the importance and role of partnerships …Operational Processes and RolesTechnology

56. Experience

57. Intellectual Property

58. Vision and Strategy

59. Organizational Focus

60. Speed to Market

61. Risk Management

62. Market Insight

63. Capabilities & IPIPOrg StructureSuccessful RelationshipRelationship GovernancePerformance ManagementLonger term, need to partner with gatekeepers in the telematics ecosystem

64. Understand and exploit the unique economics12534Manage Unique EconomicsEstablishOrganizational Focus & StrategyBuild Holistic Offering by Target SegmentCreate Compelling Message & ExperienceLeverageStrategic Partnerships… but also additional costsNew sources of revenue …Expanded markets and offerings

65. Share of customer wallet

66. Retention

67. Customer acquisition costs

68. Product costs

69. Operating costsCostsRevenues~ Margin: Underwriting revenue offset by Loss CostsProfit per customer+ Growth: Customer acquisition + RetentionCore growth+ Growth: Expanded markets and offeringsUnregulated growth

70. Key Messages“Get in the market … and have a longer-term plan”– the market is evolving rapidly, by-standers run the risk of declining profitability and losing market share“Know your customer” – understand how to serve the customer beyond traditional insurance and leverage increased interactions to create value“Enhance your brand” – define your role in the telematics ecosystem, and take steps to differentiate and protect your company“You can’t do it alone” – partnerships are required to get to market quickly, to make multiple bets in the face of uncertainty as well as ensure longer-term success“Make the new economics work” – understand and exploit the economics of telematics to achieve growth while protecting or improving profitability and reduce cost barriers