Telematics

1
Telematics, Market Drivers and Industry
Collaboration
26th June 2002 Gothenburg, Sweden Norman
Frankel Director of m-Commerce Telecoms
Solutions Logica Frankeln_at_logica.com 44 7879
668627
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Agenda

• Vertical Market Drivers including
  pay-as-you-drive insurance
• Regulatory Drivers including road pricing
• Business Models
• Identifying the technology enablers and the role
  of systems integrators

3
Market Drivers

• Fleet Management small to medium sized fleets
• Move to larger fleets car rental and fleet
  leasing
• Real-time traffic information including Floating
  Car Data (FCD)
• Motor Insurance Pay-as-you-drive insurance
• Mobile Enterprise Applications

4
Pay-as-you-drive insurance

• Variable rate pricing of motor insurance premium
• Based on distance travelled, driving time, type
  of road, time of day
• Offers motor underwriters new ways to price their
  premiums and differentiate from their competitors
• Offers savings to many customers plus the
  possibility of new in-vehicle services such as
  emergency assistance
• Enabling technology is Telematics
• GPS technology used for accurately calculating
  distance travelled and location of vehicle
• Cellular Networks (GSM, CDMA etc) used for
  transfer of data and bearer over which to offer
  services
• Devices retrofitted to vehicles in short-medium
  term

5
Pay-as-you-drive insurance

• Current collective pricing mechanisms result in
  cross-subsidisation within customer groups
• This is an opportunity for an insurer to more
  accurately price risk and offer prices
  competitors cannot match
• Currently overpriced customers can be won from
  competitors
• Underpriced customers can either be
• accurately priced (returned to profitability)
• exited as loss makers
• maintained on existing non-PAYD policies

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Pay-as-you-drive insurance

• Progressive Insurance, USA
• Axa, Ireland
• Norwich Union, UK
• Business case relies on cost-effective technology
• Cost effective telematics enabling infrastructure
• Low cost telematics units (lt 250)
• Low cost of fitting
• Ability to offer additional services
• Emergency Assistance, Route Assistance, Real-time
  traffic information, Location Based Services
• Not suitable for all drivers, offered alongside
  normal insurance premiums
• Excellent opportunity for insurers to get closer
  to customers

7
Car Rental

• Characterised by large, heterogeneous vehicle
  fleets with undifferentiated product offerings
  compete largely on price
• Difficulties in managing their assets and
  improving utilisation rates, reducing vehicle
  theft, improving customer service and
  differentiating their product offering
• Fleet Management solutions supporting tens or
  hundreds of thousands of vehicles have the
  potential to deliver massive benefits, through
  closer management of the vehicle assets
• Improve residual value and therefore buyback
  price of vehicles
• Eliminate missed mileage buyback limits and
  consequent financial penalties incurred
• Reduce number of stolen vehicles, Improve
  utilisation rates
• Potential to offer attractive location based
  services to renters, many of whom are unfamiliar
  with local roads, traffic and are interested in
  points of interest this could open up new
  revenue streams

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Fleet Leasing

• Similar business pains to car rental but
  different stakeholders
• Share benefits across all stakeholders
• 1) Vehicle Manufacturer 2) Leasing firm 3)
  Corporate client (fleet manager) 4) Company Car
  Driver
• Fleet leasing company is looking to better manage
  its assets and improve the service it offers to
  its corporate customers and the car drivers
  themselves
• Close management of vehicle assets
• Improve residual value and therefore buyback
  price of vehicles
• Feedback vehicle diagnostic and prognostic
  information to manufacturers electronically
• Eliminate missed mileage buyback limits and
  consequent financial penalties incurred
• Provide corporate customers with fleet management
  services
• Provide car drivers with improved customer
  service

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Floating Car Data (FCD)

• Telematics units installed in high-use fleets
  covering strategic road network
• These moving probes gather information about
  traffic conditions and feed this back in
  real-time to central control centre
• Complements fixed traffic monitoring
  infrastructure to provide quality real-time
  traffic information
• With use of quality historic data, traffic
  condition predictions can be made and a road
  timetable can even be constructed with estimated
  journey times
• National Express coaches in UK act as monitoring
  probes, covering strategic roads and travelling
  over 80 millions miles annually. The information
  also benefits National Express, allowing them to
  manage their fleet better and provide more
  accurate information to their customers
• Quality FCD probes can form part of a fleet
  management solution providing value to fleet
  managers and providers of real-time traffic
  information

10
Mobile Enterprise Applications

• Police forces, Breakdown recovery firms, Taxi
  firms, Utility companies, Field engineers,
  Delivery firms
• Sales Force Automation (SFA), Remote Order
  Management, Remote Task Scheduling etc
• Integration with SAP, Enterprise Applications
  allowing staff access to these applications while
  in the field
• Cost savings, improvements in productivity,
  improvement in information capture accuracy,
  real-time access to company information, improved
  service delivered to customers
• Cost of providing enabling infrastructure and
  in-vehicle can be high but very good productivity
  and efficiency improvements can result in
  excellent ROI
• Range from small solutions for 20 field engineers
  to taxi scheduling and dispatching system for
  5000 taxis

11
Regulatory / Government Drivers

• Some important regulatory / government (local and
  national) drivers
• Fuelled by road congestion, moves to more
  equitable road tax pricing, environmental
  concerns, more efficient use of existing
  transport infrastructure, improved road safety
• Mobimiles in Netherlands currently on hold
• German Government HGV Road Tolling using
  telematics expects to collect 3.4 bn in annual
  tolls from 2003
• UK Government HGV road tolling beginning 2006
• UK Satellite Road Pricing Trial, Leeds 2003

12
Business Models

• Who is currently making money out of telematics?
• Fleet Management Stolen Vehicle Tracking
  companies are making profits and have been for
  many years
• Easy to articulate business case to prospects,
  with ROI often measured in months
• Fleet Management benefits include fuel savings,
  increased productivity, reduced communication
  costs, improved business processes, reduced
  insurance premiums, stolen vehicle tracking
• Typically charge customers 50 per vehicle per
  month
• Robust Business Case Profitable Business

13
Business Models - Why did Wingcast fail?

• Riding the hype in the Telematics Industry
• Lack of robust business case
• Too much early focus on consumer services and new
  revenue streams and too little on cost
  efficiencies and customer loyalty benefits that
  could be realised
• Lack of focus on building cost efficient enabling
  infrastructure
• Not big enough economies of scale witness new
  JVs
• Future business case should be based upon
  delivering benefits to vehicle manufacturer
  reduced warranty costs, vehicle diagnostics and
  prognostics, leading to reduced recalls, improved
  product development and RD, improved customer
  loyalty and increased cross-sell opportunities
  (vehicle services and maintenance)
• New revenue streams from in-vehicle application
  services should be considered carefully

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What about consumer telematics?

• OEM Telematics largely installed in luxury
  vehicles as an option clearly some demand in
  certain segments, certain segments are willing to
  pay for applications and services delivered to
  their vehicles
• For mass-market telematics picture is less clear.
  Likely to be resistance from many customers in
  Europe to subscription model
• Safety and security applications important but
  customers will expect these as standard over
  time, just as with airbags
• Careful segmentation and customer research to
  identify likely successful customer propositions
• Competitive advantage in short-term, customer
  loyalty benefits in medium-long term
• New revenue streams from applications and
  services to certain segments

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System Integrator Role and Technology Enablers

• Can provide full-end-to-end solutions
• Reduce complexity for customers
• Selection of best-of-breed technology
• Management of blend of partners
• Integration with Enterprise solutions, SAP etc
• Key elements include
• On-board hardware
• Wireless Network Operator and enabling
  infrastructure
• Integration with billing systems, data
  warehouses, GIS, Enterprise CTI, Contact Centres,
  CRM, Application Content Servers
• Analysis, Reporting Business Integration
• Value Add and 3rd Party Services (Content,
  Application provision)
• Overall operational support

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In conclusion

• Holistic approach to telematics strategy
  considering all stakeholders and impact of
  changes in regulation and legislation (e.g. block
  exemption, E112)
• Focus on building robust business case
• For OEMs this means delivering cost savings
  through reduced warranty costs, product recall
  savings, improved product development, improved
  customer loyalty and improved cross-sell
  opportunities for higher margin services and
  maintenance products
• For consumer services and applications, carry out
  careful segmentation and be realistic about cost
  of providing these against customer appeal and
  willingness to pay and potential profits how
  many drivers really want to receive stock quotes
  or surf the internet while driving?