August 4, 2017 / 10:31 AM / 15 days ago

Fitch: Mandatory Telematics No Game Changer for Italian Insurers

(The following statement was released by the rating agency) LONDON, August 04 (Fitch) The Italian government's requirement for motor insurers to install telematics devices in all vehicles and use the data to help set premiums will not significantly change the profitability or credit profile of the Italian insurance market, Fitch Ratings says. The expansion of telematics to full coverage of the market is unlikely to trigger premium rate reductions that have a large impact on profitability because the market is barely above break-even, meaning that there is limited scope for profit margins to be reduced. Telematics "black box" devices fitted to cars to track mileage and driving behaviour enable insurers to price more granularly to better reflect individual drivers' risk profiles, which may mean lower premiums for drivers with lower risk characteristics not picked up by current pricing factors. However, we expect the resulting premium reductions for some customers to be broadly offset by premium rises for others, with minimal impact on the insurance sector's aggregate earnings. Insurers will bear the cost of devices being fitted when customers start or renew their annual insurance contract, but we expect they will pass the costs to customers through premiums. We believe much of the ultimate impact of telematics on pricing has already taken place in Italy, given the widespread use of telematics in the market segments where it is most likely to lead to pricing adjustments. Italy is already the world's largest telematics market. According to Italy's national association of insurers, telematics applied to 17% of motor insurance contracts at end-2016. Black boxes are widely used in southern regions of Italy where insurance frauds and tariffs are typically higher and where telematics can therefore lead to a bigger cut in premium rates for low-risk drivers. This has contributed to price cuts in recent years, but we do not expect the wider rollout of devices to have a marked effect on pricing differentials or average premium rates, as remaining pricing anomalies elsewhere in the market should be less significant. Insurers that have taken the lead in using telematics while it has been voluntary are better placed for when it becomes mandatory, given their experience of collecting data from devices, analysing how it correlates with claims, and factoring this into pricing. Insurers less adept will initially be at a competitive disadvantage, potentially losing some of their more profitable business to insurers that can price it more accurately using their greater knowledge of telematics. The proposals to make telematics (or similar alternatives) mandatory were approved on 2 August by the Italian parliament and are due to be followed through by the government in 2018. The proposals also strengthen the obligation on insurers to give appropriate premium discounts, eg for vehicles fitted with a breathalyser to prevent drink-driving, and for drivers in high accident regions who have four years of no claims. The regulator will monitor insurers and can enforce discounts and issue fines for breaches. Contact: Nicola Caverzan Associate Director, Insurance +44 20 3530 1642 Fitch Ratings Limited 30 North Colonnade London E14 5GN Federico Faccio Senior Director, Insurance +44 20 3530 1394 David Prowse Senior Analyst, Fitch Wire +44 20 3530 1250 The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Media Relations: Stefano Bravi, Milan, Tel: +39 02 879 087 281, Email: stefano.bravi@fitchratings.com; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. 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