Need to know
- Insurtech is a new style of insurance that uses real-usage data to determine risks and pricing
- Car insurance is the first type of cover to use this technology in Australia, with new entrant Koba
- CHOICE experts are warning consumers to consider the privacy risks of data-driven insurance before switching
Of all life's important purchases, insurance is the one we hope turns out to be wasted money. It buys peace of mind, and if life goes to plan, we hope we never have to claim against those insurance payments.
But we also don't want to spend more than we have to for the amount of cover we might need.
There's a new kind of insurance set to make some big changes to the industry in the years ahead. Dubbed 'insurtech', a combination of the words 'insurance' and 'technology', it uses data-capture technologies to price insurance based on the real usage patterns of the customer.
Automated 'pay-per-kilometre' car insurance is the first example to launch in Australia.
But there are concerns over the extent of the data collected, its accuracy, and the algorithms used to set prices.
Car insurance is one of the first of the insurance products to offer insurtech policies in Australia.
While some traditional insurers will offer rates based on expected annual mileage, insurtech car policies use a tracking device (or your smartphone for internet-connected cars) to capture real vehicle data to deliver dynamic pricing for the customer.
Through an app on your smartphone and a telematics device' plugged into an on-board diagnostics (OBD) port on your car, the insurer will receive detailed information about how far your car travels and how it's been driven.
Acceleration, braking and cornering data may all be used to profile your driving style and the risks it may present.
With insurtech, an onboard device sends information from your car directly to your insurer.
'Truer' prices for insurance
The pandemic offers a prime example of a potential benefit of insurtech powering your vehicle insurance policy.
According to the Australian Bureau of Statistics, in June 2020, the average annual distance driven by an Australian vehicle was 12,100km.
But for many drivers, their car has spent more time parked at home since early 2020 and so has had a far lower risk of being involved in a traffic incident.
Traditional policies don't adjust for when you're not using your car – the price is the same whether you're using the car or not. Under an insurtech-based policy, that lack of time behind the wheel can be reflected in a direct reduction in your monthly policy price.
With traditional policies, the price is the same whether you're using the car or not
One of Australia's first movers in car insurtech, Koba Insurance, offers pricing with a base price for your vehicle being parked at home, and a cents-per-kilometre price paid each month.
The policy holder gets an initial policy price based on their upfront estimate of car use, and the policy price will adjust based on real use.
The policy will also include caps on daily and monthly distance charges should you find yourself taking a particularly long trip unexpectedly.
On its website, Koba says that the traditional car insurance industry has seen an $800m windfall through reduced claims due to lower vehicle use during the pandemic, but hasn't passed on those savings to customers in the way of reduced premiums.
With insurtech, the policyholder gets an initial policy price based on their upfront estimate of car use, and the policy price will adjust based on real use
"The reality is that [insurtech-driven prices] aren't better prices, they are truer prices," says Andrew Wong, founder of Koba Insurance.
"In insurance, the low-risk people pay a bit more to offset the high prices of people who are high risk. A traditional policy burns you for up to five years, because the industry assumes it takes that amount of time to 'learn from your mistake'. If you are a safe driver and the telematics can prove that, then why should you wait that long?"
May improve claim times
Insurtech providers promote faster claims in the event of accidents. With real-time data availability, the incident can be flagged automatically with the insurer and a claim process actioned while you're still wondering what happened.
Insurtech providers can use your data to build a profile of the kind of driver you are based on how smoothly – or erratically – you drive.
"There are benefits in consumers understanding their own data," says Simone Dossetor, CEO of Insurtech Australia, an industry association for insurtech.
"From this they can change their driving behaviour to be safer or more fuel-efficient."
Dosseter says that another benefit of insurtech is that customisation becomes easier, so the customer can choose a product that better matches their needs.
Koba Insurance founder Andrew Wong agrees: "With data-driven insurance, we can create an entire car care and engagement relationship – service reminders, safe driving courses, personalised pricing, aftermarket product markets (tyres, dash cams, floor mats etc.).
"Everything is being digitised these days, the customer expects things to be faster, more convenient, and easier. Insurtechs will use this to change the market."
The more you consider these forms of data tracking and analysis, the more you may notice the potential problems with insurtech for your vehicle.
"Insurers are certainly pushing the idea that claims will become simpler and faster because you won't need to make the claim, your device can make the claim on your behalf," says Kate Bower, consumer data advocate at CHOICE.
"A future where you get into an accident and the device in your car will automatically notify your insurer and send real-time data back to the insurer on the one hand seems like a benefit. But on the other hand it does put a question mark over how protected you are."
If an automated response has been triggered, Bower points out that it may create a new difficulty for the consumer in how to navigate such a claims process. What if a different driver is in the car? What if the car's been stolen? What options do you have if the insurer has made a mistake? Or what if you'd prefer to fix your car privately and not make a claim?
While the local market has been slow to start and has seen little regulatory scrutiny to date, the Financial Service Regulatory Authority of Ontario, Canada has expressed concern over "uncertainty around the statistical accuracy and reliability of data" collected by such technology.
According to Koba Insurance's Product Disclosure Statement: "We may use this information in the handling of any claim you make to verify the circumstances of an incident, the extent of our liability and to help speed up the process for you. We may make some of this information available to you in the App as a service to improve your safety and the care and costs associated with your car."
In the UK, stories have also emerged of drivers receiving bad driver ratings that differ from alternate tracking systems embedded in their cars, being told to 'drive less' having only driven short distances, and even stories of cars being observed crossing the English Channel while parked at home.
We're putting a lot of faith in insurers that they have good machine learning programs that can actually test if these behaviours affect driving performance and safetyKate Bower, CHOICE consumer data advocate
"I think at a certain point we're putting a lot of faith in insurers that they have good machine-learning programs that can actually test if these behaviours affect driving performance and safety," says Bower. "A lot of things go into these algorithms that are meant to assess future behaviours or riskiness where things haven't been proven to be a factor."
"Some we know might be straightforward. Park in a dangerous neighbourhood, your car is more likely to get stolen. That's borne out over time. But does listening to the radio increase your likelihood of an accident? Who knows? Once they start including more factors and data points, the more potential there is for inaccuracy, but the insurers would have you believe that more data points equates to greater accuracy."
The privacy of driver data is also a critical question for insurtech customers. Vehicle travel data can reveal deeply personal insights into someone's life – but is it being guarded appropriately? With no clear Australian standards in this regard, it's up to the individual insurers to make commitments to customers.
"Do you want to tell your insurer every single thing that happens in your car?" asks Bower.
Vehicle travel data can reveal deeply personal insights into someone's life – but is it being guarded appropriately?
"When insurtech products first launched they said they were only going to collect kilometre data. When the product went into the market it added cornering, braking, length of trip. Next it could be what's happening inside the car, what's outside the car, how many voices are in the car. Certainly, the sophistication of these devices can enable that."
"It could go to the level of whether you have your phone in a holder or not. Are you making several phone calls? Are you listening to loud music? Are you smoking in the car? These all might feed into risk factors which can then affect pricing and your ability to claim into the future."
There are concerns about how much data insurtech can gather about you, and where it may be shared.
The industry acknowledges it's important to move forward carefully in its use of personal data.
"There needs to be clear and transparent consent on how the data is used which can be regularly and easily updated," says Insurtech Australia's Dossetor.
"Insurers are increasingly aware there are ethical considerations to how algorithms work, and some are establishing ethical committees or experts to specifically highlight and address this. There is also a role for the industry to come together and set standards to ensure there are the necessary guardrails in place."
Insurers are increasingly aware there are ethical considerations to how algorithms work, and some are establishing ethical committees or experts to specifically highlight and address thisSimone Dossetor, Insurtech Australia
"We take data sharing very seriously at Koba," says Wong. "We know you trust us with your data and you rely on us to offer real benefits. We will never sell your data. We believe that the driving data belongs to you and that you should be able to access and share it with whom you want to."
Wong also explains that while Australia has yet to develop local standards, Koba is setting its policies according to two leading international standards: the General Data Protection Regulation (GDPR) in Europe and the California Consumer Privacy Act (CCPA) in California.
"The simple trick is that companies must do what is right for the customer," Wong says. "If it feels 'icky' then it probably is."
"Bottom line, across all automated decision-making, we just need more transparency," says CHOICE's Bower. "We need any business using automated decision-making to be more open about how they're using it, what testing they've undergone and what mechanisms they have in place to ensure it is working and it's safe."
It's particularly important for any consumer who opts into an insurtech product that they stay abreast of any changes their insurer may make to how their policy functions.
Keep an eye on policy changes and charges
"If you want to try out this product, read the fine print carefully and stay on top of changes. Because it's a new product to the market I suspect we'll see it change," says Bower.
We need any business using automated decision-making to be more open about how they're using itKate Bower, CHOICE
The changing monthly price of pay-per-kilometre insurance makes it more difficult to compare with traditional products. So if you do switch to a data-driven policy, you should keep a record of the monthly costs to avoid being victim to a loyalty penalty, where the insurer gradually increases the price of the product once they realise you're unlikely to switch.
Koba Insurance is the only provider of insurtech in Australia (at the time of writing) with a product that launched in November 2021, but there are a few more waiting in the wings.
Koba states on its website that it's taking a conservative approach to its initial focus, excluding vehicles like vans from its current offering and stating that its pricing best suits drivers who drive less than the national average.
In the wider insurtech industry, the Insurtech Australia industry body lists over 70 member organisations and ten key partners including traditional financial industry leaders such as Macquarie, QBE, Hollard, South Australia's RAA and more.
There's a lot of development and entrepreneurship in the insurtech space, so expect more entries to the market – including from traditional insurers – very soon.
Traditional insurers offer some tailoring
Traditional car insurance policies offer some option to reduce pricing based on shorter estimated annual distances.
If you're driving less due to now working from home, for example, it would be worth revisiting your car insurance and requesting a price reduction.
If you're driving less it would be worth revisiting your car insurance and requesting a price reduction
Some insurers are also offering a more manual concept for drivers who do minimal mileage. For example, AHM has a "pay as you drive" policy that lets you buy from 1000km to 15,000km worth of coverage and 'top up' when you need to, requiring manual odometer readings to confirm accuracy of coverage.
Other brands such as Choosi and Real also offer pay-per-kilometre policies, and some let you roll over unused kilometres each month.
Stock images: Getty, unless otherwise stated.