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HOW VEHICLE DATA WILL DRIVE MOTOR INSURANCE

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Sherezad Rehmann, Senior Director of Global Product Management, and Martyn Mathews, Senior Director of Personal Lines Insurance, U.K. and Ireland, LexisNexis Risk Solutions

 

As nations globally instigated lockdown measures to control the spread of COVID-19, private cars largely went unused for weeks on end.  The annual motor insurance premium calculated on a range of factors such as where the policyholder lives, their age, occupation and engine size could not factor for this sudden and prolonged change in risk. Insurance providers offering telematics or usage-based insurance products had insight the rest of the market could only guess at with reports of traffic volumes falling between 70%-85%[i].

The pandemic has highlighted the value of static and dynamic vehicle data in understanding risk, delivering a fair and accurate premium and giving motorists more flexibility and control over their insurance costs. Rather than rely on estimations and proxies for risk, it could tell an insurer the car’s mileage (valuable insight during and post-pandemic), the car’s position, how it is driven and the Advanced Driver Assistance Systems (ADAS) features on-board and activated to enable the development of more personalised, more engaging insurance cover.

This isn’t visionary, the insurance and car manufacturing markets were coming together to make this concept a reality, well before the emergence of COVID-19.

By 2030[ii], all new vehicles are expected to have connectivity feeding a wide range of data to car manufacturers. Carmakers have invested significantly in connectivity as part of their drive to provide a greater choice of mobility solutions to help improve the customer experience. Data from the car can help them understand exactly how their vehicles are used and how they can cut the cost of ownership as they invest in developing increasingly autonomous vehicles as part of their zero emissions and zero fatalities objectives. C.A.S.E., or Connectivity, Autonomous, Sharing/Subscription and Electrification, is being used as the guiding principal for the future of the auto industry.

In parallel with the development and increasing market penetration of the connected car there is a recognition amongst insurance providers that they will need access to vehicle centric data to support the provision of usage based insurance.

It is as much in insurers’ interests to understand more about the car as it is manufacturers.  Consumer expectations were already changing prior to the pandemic, but the demand for more personalised products looks set to increase. Vehicle centric data has the potential to help price insurance more fairly, cut claims costs and deliver new services such as Pay As You Drive products.

The big question has been how to bring these two major industries together so that insurance providers can access connected car data in a way that adheres to data privacy and security regulations as well as making sure that the data is useable and meaningful for insurance.  How do you ensure Mrs Smith driving her Fiat 500 is given the option to share her driving data for insurance and this will be understood in the same way as her neighbour driving a completely different car?  When you think about the volume of car makes and models, the number of motor insurance providers, the quantity of motorists buying insurance it becomes a big ‘many to many’ problem.

The solution lies in a data platform strategy that takes all the strands of vehicle centric data – so   telematics data from any device or app, data from the connected car and vehicle build data and putting it into an environment where it can be standardized, contextualized, normalized and scored in a fully compliant manner for use across a variety of vehicle makes or models.  This is one big data project that could have a profound impact on the future of mobility.

The starting point goes back to the investment car makers are putting in vehicle autonomy with ADAS (Advanced Driver Assistance Systems) increasingly available in vehicles and constantly being enhanced. SMMT research shows 8 in 10[iii] new cars in the UK have driver assistance systems and over half have adaptive cruise control.  In the US, LexisNexis internal analysis shows 76% of

2019 models had at least one core ADAS feature, which is up significantly compared to 18% in 2014[iv].

To date, it has been a challenge for insurers to identify exactly what ADAS features a specific vehicle is equipped with when writing a motor insurance policy. This is because each car manufacturer has created their own unique terminology, definitions and naming structures – sometimes releasing multiple features within the same model year. In addition, many items are chosen as optional extras when a vehicle is purchased from new.

To address this challenge, data scientists at LexisNexis Risk Solutions have developed an ADAS classification system using machine learning to scan millions of lines of car manufacturer vehicle data to logically sequence and classify vehicle safety features and component’s intended operation or purpose.

This classification system provides the foundation for LexisNexis Vehicle Build. Access to vehicle safety data will help insurance providers factor for their presence throughout the customer journey – in pricing, mid- term adjustments and renewals – and establish the differences in risk profile associated with the vehicles that have these safety features.

Access to vehicle safety data will help insurance providers factor for their presence throughout the customer journey.  It will also enable them to understand how specific safety features behave, for example if a feature will provide an alert or warning to the vehicle’s driver when a potential danger or hazard is detected. It will also allow insurers to understand the purpose of features.

At the same time, car manufacturers will be able to see what ADAS features have the most impact on their customer’s safety to help drive further enhancements.

As carmakers and insurers get a better understanding of the vehicle, how it’s driven, its performance and how semi-autonomous features work in the real world, consumers will also learn how data from and about the car can work for them.  This will support market adoption, drive innovation and help create more benefits in terms of safety and total cost of ownership.

Safer cars, safer roads, lives saved, fairer more flexible insurance cover – the value of vehicle centric cannot be overstated and we’re already well on the journey to enable motorists to truly benefit.

 

[i] Source: LexisNexis Risk Solutions and Autosaint Analysis – March-June 2020
[ii] LexisNexis Risk Solutions Research of the Automotive market conducted in 2018
[iii] Source: Society of Motor Manufacturers and Traders: https://www.smmt.co.uk/wp-content/uploads/sites/2/SMMT-Motor-Industry-Facts-JUNE-2020-FINAL.pdf
[iv] LexisNexis Risk Solutions Analysis conducted in 2019

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Business

IT COST MANAGEMENT: 10 STEPS BUSINESSES CAN’T IGNORE

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By Matt Dando, Director, Strategic Business Value Consulting at Serviceware

 

In today’s ever-accelerating digital era, and as we recover from a global pandemic, digital transformation has stepped more firmly into the limelight. Over the last 18 months, digital initiatives have accelerated, with investment in the cloud also increasing dramatically. Digitalisation is arming CFOs and CIOs with data, but understanding what to do with it can be overwhelming, especially when battling to manage cost data from the various vendors associated with both cloud and existing on-premises investments.

With pressure around sustainability acting as another catalyst for cloud adoption, never has there been a greater need for businesses to have a complete, detailed and transparent view of all IT costs. In fact, now is the time for businesses to ensure that they are managing IT costs effectively – not just in terms of cutting, but also optimising, investments, and reinvesting in the tools and technologies that can and will enable them to keep up with the wider business strategy. Luckily, there are 10 simple steps that businesses can follow in order to ensure a comprehensive, detailed and streamlined control over all IT costs.

Step 1: Building a comprehensive IT service catalogue

The starting point for IT cost control is the creation of an IT service catalogue. This catalogue outlines individual IT services, information about their purpose, location and costs, to create a detailed overview. Having a clear and complete definition creates standards for available services and bridges the gap between different departments.

Matt Dando

Step 2: Effectively monitoring IT costs

One of the most important tools for the efficient tracking of IT costs is the control of the value chain, from the smallest cost units to finished business units. With the help of service catalogues, benchmarks, the use of IT Financial Management (ITFM) or what is often referred to as Technology Business Management (TBM) solutions, comprehensive access to this data can be guaranteed, creating a ‘cost-to-service flow’ that identifies and controls the availability of IT costs.

Step 3: Assessing IT budget management

Even with perfect transparency of IT costs, there are different approaches to allocating IT budget – centralised, decentralised and iterative. With a centralised approach, the budget is determined in advance and distributed to operating cost centres and projects in a top-down process, allowing for easy, tight budget allocation. With this approach, however, there is the risk of overlooking projects that offer potential growth opportunities. With the decentralised approach, the process is reversed. Operating costs are precisely calculated before budgeting and projects are determined. The downside is that budget demands might exceed available resources.

Finally, the iterative approach tries to unify both methods. Set budgets, overhead and prospective projects are put together to make a detailed assessment of the most viable course of action. Although the most lucrative approach, it also requires the most resources. None of these approaches are necessarily superior. Instead, it depends on the available resources, and the enterprise’s structural organisation.

Step 4: Managing IT budget for growth

Before allocating IT budget, it is important to define costs into two categories: ‘run’ and ‘grow’ costs. ‘Run’ costs usually include operating costs, while ‘grow’ costs refer to all services and products that are intended to change, transform or expand the business. Benchmarks and standard definitions can help with this categorisation, but do not necessarily have to be followed, as long as cost allocation remains consistent. When definitions have been clearly determined and projects assigned, the IT budget needs to be allocated and decisions need to be made on how to split the budget. Whilst a split of 70% run/30% grow is the norm across most enterprises, there is no one-size-fits-all approach, and decisions will rely on varying factors such as availability of resources and the goals of the enterprise as a whole.

Step 5: Keeping a positive gross profit margin

By following the steps above, organisations can achieve complete transparency with regards to which products and services are offered, where IT costs stem from, and where budgets are allocated. This makes it easier to analyse how much of the IT budget is being used and where costs lead to profits and losses. If the profit margin is positive, the controlling processes can be further optimised, and, if the profit margin is negative, appropriate, or timely, corrective measures can be initiated.

Step 6: Staying tax compliant

One additional important factor in comprehensive IT cost control is tax compliance. The more the enterprise of a company operates internationally, the more relevant it is to stay on top of varying international tax regulations. IT products and services that are marketed abroad are subject to country-specific tax laws and, to ensure that they are adhered to without errors, it is necessary to provide correct transfer price documentation. This in turn depends on three factors:

  • Transparent analysis and calculation of IT services based on the value chain
  • Evaluation of the services used and the associated billing processes
  • Access to the management of service contracts between providers and consumers as the legal basis for IT services.

By achieving the transparency enabled by the previous steps, it is possible to demonstrate international tax compliance.

Step 7: Benchmarking IT service pricing

The first step in pricing IT services is to collect benchmark data. These can be researched or determined using existing ITFM solutions that are able to obtain them automatically from different – interconnected – databases. Next, a unit cost calculation is necessary in order to define exactly and effectively what individual IT services – and their preliminary products – cost. This enables businesses to easily compare internal unit cost calculations with the benchmarks and competitor prices, before making decisions about pricing.

Step 8: Providing factual cross-driver analysis

A properly modelled value chain makes it clear which IT services or associated preliminary products and cost centres incur the greatest costs and why. This analysis allows for concise adjustment to expenditure and helps to avoid misunderstandings about cost drivers – for example, the importance of infrastructure on the generation of IT costs. Then, strategies can be developed to reduce IT costs effectively and determine more careful use of expensive resources.

Step 9: Accounting and invoicing IT costs

IT cost control through the value chain enables efficient usage-based billing and invoicing of IT services and products. If IT costs are visualised transparently, they can easily be assigned to IT customers. This increases the transparency of the billing process, and provides opportunities to analyse the value of IT in more detail. There are two options for informing managers and users about their consumption: either through the showback process – highlighting the costs generated and how they are incurred – or through the chargeback process, in which costs incurred are sent directly to customers and subcontractors.

Step 10: Managing supply and demand

The manual nature of Excel spreadsheets poses a risk to data integrity and should therefore be avoided, as they are impossible to keep up to date all the time and require significant effort to maintain. A holistic analysis and greater cost transparency results in a larger, more detailed overall picture of IT service consumption, which allows conclusions to be drawn in a timely manner to enable the optimisation of supply and demand for IT services in various business areas.

Optimising and maintaining IT cost control

Following the above steps will ultimately enable businesses to reach new levels of efficiency and maturity – and, more importantly, create a secure, transparent, and sustainable IT cost control environment. Budgets can be optimally utilised, IT costs can be cut and overall productivity significantly boosted. However, businesses that ignore this advice will be severely hindered if they do not stay on top of the ever-changing conditions of the current market landscape.

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Finance

QUESTIONS TO ASK YOUR FINANCIAL ADVISER

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With World Financial Planning Day approaching, it is the ideal reminder to meet with your financial adviser and review your financial position. To help you prepare, Jaco Prinsloo, certified financial planner at Alexander Forbes, outlines some questions to ask:

 

Am I sufficiently covered?

Just like insuring your car against a loss or damage, you also need to insure your life and your ability to generate an income. Your financial planner can assist you in setting up a personal insurance policy to protect you against the loss of income or life. You can use the proceeds from the policy to replace your income or take care of your loved ones when you are no longer here to provide for them. A good financial adviser will also warn you if you are over-insured, as this leads to paying unnecessary premiums which could be better used elsewhere.

 

Jaco Prinsloo

Am I invested according to my risk profile and goals?

Knowing your risk profile will help you determine your risk appetite to reach your investment goals. You might like the safety and security of money market funds, but saving for retirement using money market funds means your money will not grow fast enough. You exchange the risk of your money fluctuating with the market, with the risk that you will not be able to retire due to insufficient savings. Your financial adviser can help you find a balance between your comfort level and your investment goals to make sure you sleep well at night while being able to retire one day.

 

Are my investment goals on track?

Your investment returns must be secondary to your goals. Ask your financial adviser to give you a future cash flow projection for your goal to see if you are on track. Although the projection is just an assumption, it will give you a target to aim for. In addition, if you need to make adjustments, your financial adviser can help you find a cost-effective and tax-efficient solution to meet your investment goals.

 

What fees am I paying?

Some investors believe that they are not paying any fees or that there are no costs associated with their investments. However, reinvesting dividends, issuing statements, and buying and selling shares all come at a cost. Ask your financial adviser what your effective annual cost (EAC) is. This will show you the total cost of managing your investment. If you are paying above the industry average, ask your financial adviser to help you to explore alternatives. With investments, you get what you pay for. So do not always look for the cheapest option – look for the option where you believe you could get the most value for your money.

 

How is my financial adviser doing?

As you will be sharing personal information about your finances, it’s important to build a trusting relationship with your financial adviser. To ensure you receive up-to-date and current advice, remain current with industry changes and do not be afraid to question your financial advisor on these developments and the potential impact to yourself. An informed decision will give you the trust and confidence to act on any advice provided by your financial adviser, as you know it is the best for you.

Our emotions and feelings are often our worst enemy when it comes to personal finances. Your financial adviser cannot pick the next hot stock or make your debt go away. But they can save you from making emotional decisions and provide you with the support to reach your goals. Schedule that meeting with your financial adviser – and if you don’t have one as yet, there’s no time like the present.

 

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