The great thinkers understand that where we come from affects where we go! It’s with this in mind that we decided to take a look back to the early days of telematics technology and usage-based insurance.
As we’ve just celebrated 100 months with Paul Stacy as the founding director of Wunelli, a LexisNexis Risk Solutions Company, we sat down with Paul to look back on his career, his thoughts on innovation and what we’ve learnt about creating new insurance services.
Q: Paul, where did the idea of creating a telematics provider come from?
A: I can remember distinctly the ‘epiphany moment’ nine years ago. We lived in a quiet suburban area and as I was coming out of my house one day, I stopped to watch as a car came at speed into the estate, seemingly out of control. It then braked suddenly to avoid a child who had run out on to the road. It was a real heart-in-mouth moment.
The driver was young and clearly inexperienced. It could have ended very badly but fortunately both the child and driver were fine. My background in insurance broking and technology meant I was already familiar with the concept of usage-based insurance. But that one event made me think more deeply about the role telematics could play in improving road safety, and that was the real trigger for the creation of Wunelli and my career in insurance telematics.
At that time there really weren’t any other businesses in the UK using telematics successfully but I knew there had to be a way to make it work. We would start small and learn from the data so that we could come up with a way to rate young drivers so they weren’t all tarred with the same brush.
I wrote a business plan, did a ‘Dragon’s Den’ type pitch and secured seed funding from one of the insurance industry’s most respected and influential figures, Sandy Dunn [ex-Eagle Star/Zurich, Touchstone Insurance and founder of BDML Group]. We formed Wunelli and worked for a year on an initial proof of concept, finding a technology partner for the black box devices and building the supply chain. It was Sandy’s idea to launch as a broker and sell the concept to a number or insurers and create an insurance panel. We came up with the brand Coverbox and with Penny Searles on board [now CEO at SmartDriverClub] we launched as an insurance broker, initially selling a mileage-based product on the aggregators on behalf of six insurers.
Q: What were the biggest hurdles at the start?
A: No-one thought that people would install one of these boxes for a lower premium, especially not young drivers. They believed that concerns about being monitored and ‘Big Brother’ fears meant we’d fall at the first hurdle. This ‘fear factor’ would not be helped by a lack of understanding of how the product worked, compounding people’s reasons not to buy it.
The fact is, we were putting a lot of effort into something we were really not sure people would buy. It was a real leap of faith, and we needed insurers on our panel to take that leap of faith too and give us some good discounts to incentivise people to buy our product.
We have to thank these insurers for their foresight, as they were giving discounts before they had seen any data, or knew what kind of driver they were taking on.
As it turned out, in those early days, the better drivers were the ones who opted for the policy as they had no problem with being monitored. So our panel of insurers were taking on good drivers with low claims: it was the first experience we had of self-selection. Once the insurers saw this trend emerging the discounts came thick and fast, even reaching 60% at one point.
We became the second highest-performing brand on one of the main [UK] comparison sites. But we effectively used them as a filter for all the people that didn’t want to be monitored, so that was a learning process for the site and they became the first to change the online experience for telematics products.
Coverbox had reverberations across the industry. The product not only changed the way young drivers buy insurance but also changed the way the aggregators’ online process worked.
As we started to get direct approaches from insurance brands who wanted our help to launch their own telematics products, we realised that to gain traction and grow the business we needed to stop being a broker and start being a service provider and data company.
Q: You must have been quite young when you launched the business. Was it a big risk for you personally?
A: I left my job and founded the business the same month we had our first child. I was 31. But I didn’t see it as a big risk because we set up the business in a way that would deliver quick learnings so that if we did fail, it would be quick and we could pack up shop and go our separate ways if necessary. Our philosophy was let’s go in hard and if it doesn’t work we’ll call it a day.
I knew I’d be able to get a job with an insurer if things didn’t work out. The fact that I had tried something different is interesting to new employers and if you have left an old employer on good terms invariably you will be welcomed back. Also in career terms, your 20s or early 30s are a great time to try something new when you have fewer liabilities. The same principle applies to those over 60. You tend to have less responsibility at home at that point, hence the trend for entrepreneurship later in life.
Q: What advice would you give to your ‘young self’ starting out on your career path?
A: Do it sooner. I wanted to be self-employed from the age of about 21 and I went through maybe 10 ideas in my 20s. One of my ideas was introducing pet insurance to Australia (my place of birth). In some respects I wish I had done that! I was brimming with ideas and wrote a number of business plans. I guess it just took time to discover the path I was destined to follow.
I was fortunate in that my degree in mining engineering gave me a great appreciation of basic engineering methods and problem solving, further complemented by a Masters in Maths. It meant that I could apply my naturally curious mind and hunger to find answers to business challenges to a range of industries.
So when I left college with a sizeable amount of student debt I decided to work for a management consultant to get my finances back in shape. I stayed there for five years. It was hard work but a fantastic experience.
Q: What were the first key findings from the data that made you realise you were on to a good idea?
A: The data was compelling from the outset. Although it was a small sample we could see how discriminating it was compared to the traditional rating proxies insurers were using.
Correlations between claims and no claims discount, occupation and so on, are powerful ways to predict risk but our data showed who were good and bad drivers. Some people you may have assumed would be poor drivers based on the traditional rating factors were actually great drivers and vice versa. However, I couldn’t be confident in the results at that time because we didn’t have the volume. We were also still dealing with misconceptions about how telematics worked, both inside and outside the insurance sector, and lingering fears over consumers’ appetite to share their data.
It was at this point Penny had the genius idea that we need to help educate the insurance sector rather than focus on selling. So we started running educational workshops with insurers and this worked really well as they’d get excited about the possibilities and we’d work together to launch a product with us as their supplier.
Q: What other ‘lightbulb’ moments have you had during the past eight years?
A: Creating the RUSSL speed database. In the early days we had a massive problem getting road speed limit information: the sources we were using were so expensive and largely inaccurate. I found a way for us to do this ourselves at a significantly reduced cost and with a high level of accuracy. That was a real lightbulb moment.
Q: Looking back, is there anything you would have done differently?
A: I can genuinely say I don’t think there is. Of course in hindsight it might have been tempted to get more funding to push out into more markets globally, more quickly, but we needed to focus on the UK first and foremost.
Q: What do you feel has been your biggest achievement to date?
A: The first sale on Coverbox to a non-family member, which was on the 16 January 2009. That first transaction was proof we were on the right course. Everything has flowed from that first customer. It would be great to shake that person’s hand one day!
Q: How much has telematics technology changed in the last eight years?
A: Telematics is much better understood and has evolved from simply measuring acceleration, braking and speeding. There is now a heightened focus on using telematics to detect distracted driving. Our 12V device and tethering apps are great solutions and lower cost than black boxes, but we also recognise that mobile phones in cars are just as dangerous if not more dangerous than driving badly without a phone in the car. Involving distracted driving in the rating process has been a good evolution.
Q: What can telematics reveal about driving behaviour?
A: Driving behaviour is essentially the essence of measuring risk. All the other questions for motor insurance are proxies: none of them actually directly relate to the decisions we make behind the wheel.
Second by second we are measuring people’s reactions and physical decisions when operating a vehicle, so we’re measuring the source of risk rather than the proxy factor. That’s why telematics insurance has grown year-on-year, because it is so good.
Q: Is there one thing you wish you had known at the beginning which would have made a real difference to where the business is today?
A: I wish I had known that privacy wasn’t going to be the barrier some had suggested it would be and that people would be prepared to trade their personal data to buy insurance policies for a discount.
Had we known this, we would have gone bigger at the beginning but everyone we spoke to said that was going to be the issue that would cause the business to fail.
Q: Thinking about your 100 months, what can telematics tell you after 100 miles or 100 days?
A: You get a good feel for what a driver’s like after 100 days or 100 miles. You would bet your mortgage on how good they are after 100 months!
Q: How will telematics play alongside the driverless car?
A: Telematics and driverless cars complement one another. Basically telematics is getting data out of a vehicle to monitor it. What you need to understand is that driverless cars, from an insurance perspective, will be treated like a product, so the manufacturer needs to monitor its use, identify faults and so on, to be able to insure it. In order to manage that product risk you need to monitor the vehicle, so telematics has a fantastic role to play in driverless cars.
Q: The business has been campaigning to make telematics mandatory for young drivers. How realistic is this?
A: In Australia they are considering using telematics for all young drivers and in other markets round the world we are seeing an increasing move towards using technology to gain feedback on young driver behaviour to help reduce road deaths. One of the great principles of telematics is the ability to feedback to the customer, creating behaviour modification and essentially safer driving.
But the quicker win would be removing IPT [Insurance Premium Tax] on telematics products. This is a no brainer. It would be such an easy way to help incentivise young people to drive more safely. The more people that advocate this idea, the more we will increase awareness of the benefits of telematics to help more young drivers.
Q: Do you have a telematics device in your car? How do you score?
A: I have three or four devices running at any one time. I would say I am an average driver. I anticipate well, but can be prone to impatience and driving a little too fast on residential roads.
Q: What would be the words of advice you’d offer to someone joining your business today?
A: Do the day job really well, but challenge what the business does on a day-to-day basis for the greater good. I always try to employ people that are smarter than me or have the right attitude; I am less worried about subject matter knowledge that can be learnt quickly with the right attitude.
Q: What will you be doing to celebrate your 100 months with the business?
A: I am actually just about to embark on a working trip to the US, China and Australia. I am sure I will find time to celebrate at some point during my travels.
Q: What do you do in your ‘downtime’?
A: I love skiing and playing tennis. But with three kids aged under eight, including a baby, my life outside work is pretty focused on my family.
Q: Describe yourself in three words
A: Inquisitive, entrepreneurial, problem-solver (OK so that’s four!)
Q: If you didn’t work in telematics what would you do?
A: I’d probably be an actuary or a data scientist, failing that, a sales person!
Q: What gets you up in the morning? What’s next?
A: The connected car is ultimately where I see LexisNexis Risk Solutions and our expertise in telematics and data analysis playing a vital role, working with OEMS on a data exchange. That’s the final evolution of the story we began in 2008 and it will be my main focus over the next few years. It will mean frequent trips to the US where vehicle manufacturers have a greater appetite for the data insights we can deliver.
Q: What do you think the next 100 months will bring in the motor insurance market?
A: There are big changes afoot which could change the motor insurance market dramatically. There is a great deal of focus on the driverless car, but what will come first is the connected car.
The safety systems and all the data coming from connected vehicles will bring in more data to handle and new rating factors. OEMs will want to maximise this data by getting involved in data exchanges. I think we’ll also see a reduction in car ownership due to affordability issues and an increase in car sharing, so insurers will be competing for custom in a shrinking market and facing changes to the way they rate. The survivors will be those who embrace change.
Q: If you could summarise the future of motor insurance in 100 characters, what would it be?
A: Changed business models using data from connected vehicles and more competition for fewer customers.