As Coverbox falls into administration it highlights the added challenges facing brokers in the telematics field
Telematics policies have never been so abundant.
Defaqto this week reported that the number of telematics products available has more than doubled in the last three years. There are 55 telematics products on offer today, compared to just 25 in 2016.
But amid a huge rise in appetite to offer these policies, Coverbox falling into administration highlighted the increased burdens that brokers are facing in this crowded marketplace.
“I hope Coverbox will be the last to go into administration, but I fear that other telematics broker models may be equally vulnerable,” Mike Brockman, chief executive of ThingCo, told Insurance Times.
“It’s never nice to see the demise of a fellow telematics provider since we all believe that telematics, used in the right way, is a real social positive with proven ability to reduce accident rates and save lives.”
Brockman founded telematics insurance provider Insurethebox in 2010 but left after almost a decade to set up his own insurtech firm called ThingCo.
He explained that the “telematics business model is difficult, but the telematics broker model is particularly so”.
“Regardless of the technology used, it is essential to be in full control of pricing, claims handling and operations if full benefits are to be leveraged,” he added.
“The broker model has none of these – it is reliant on the insurer’s pricing, the insurer’s claims processes and the insurer’s operational infrastructure. A successful telematics model needs each of these to work seamlessly in tandem with each other.”
Serial telematics entrepreneur Richard King told Insurance Times earlier this year he wouldn’t have pressed ahead with his latest venture Ticker if he hadn’t had control of pricing.
“The flexibility and control of owning the pen and having the MGA was such that I would not have gone again if I didn’t have that,” King said.
“Arm-twisting underwriters for capacity is incredibly hard work, and having aligned business objectives is near-impossible. Our ambitions will always be far greater than theirs.
“The beauty of sitting here seeing the data coming in, having the right people and the best tools is that you have the flexibility and control to make changes as you go.”
Tough market
Penny Searles had founded Coverbox as one of the first telematics providers in the UK. She is now chief executive of Smartdriverclub group, but last month sold the group’s telematics intermediary, Smartdriverclub Insurance, to Markerstudy.
All policies, along with the team, products and brand, were transferred to Markerstudy as part of the deal.
She told Insurance Times: “It’s a very hard market for brokers. The income per policy is just not there anymore. If you go back historically brokers made a commission to be able to compete in such a price-competitive market with the direct players and the aggregators.
“You are basically bringing in the business at a low premium, to get the business, and you have to make money in year two, which is on renewal.”
She explained that FCA rules recently introduced forcing the broker to inform the customer their policy will be renewed, and encourage them to shop around, greatly reduced that hope of turning a profit in the second year.
Multiple costs
Searles said that telematics brokers also incur more costs than the traditional broker.
Brokers have aggregator costs and the cost of acquiring the driving data, although Searles said the cost of data might be offset by greater commissions from the insurer.
“If you consider that most traditional brokers rarely make any commission and the majority of the commission comes from the add-on policies in year one, this probably just covers the costs of the aggregator,” she said.
“In year one the income per policy is probably at breakeven or a little bit of profit for a traditional insurer or broker.
“So, there is hope that the insurers would give the telematics broker better commissions because you are reducing the loss ratio. Now what’s going to happen is the year one premiums will probably go up as people are not getting the money they need on renewals. We are already seeing prices going up in the market.”
Searles concluded that it was a “tough market” and brokers have to differentiate to get insurers to pay more for the service.
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