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The prospect of UBI in Central and Eastern Europe
by Marijan Mumdziev
Until now, most of the news on Usage Based Insurance has come from a few developed markets such as Italy – which has the highest penetration – the US – as the largest market globally, and the UK, as one of the most “sophisticated” markets in terms of the variety of offering available.
South Africa- an early entrant, Canada and South America are also on the radar as the next big opportunities with regulation changes and a flurry of trials taking place.
The German, French and Russian markets are also very promising, mainly for their size, however those markets are proving challenging with higher entry barriers, whether in terms of sensitivity to data privacy or simply due to the lack of viable business case for the insurance industry.
Central and Eastern European (CEE) markets however are only very rarely mentioned when it comes to insurance telematics. There are good reasons for that; CEE markets are rather segmented – with many smaller markets having different industry conditions, legislations, language, culture, religion, political systems and even time zones.
Achieving reasonable growth in on first to justify the investment in expanding to the others would be a very hard task to accomplish, if possible at all.
The total market size of all Central European Countries is perhaps appealing, but the barriers to overcome when addressing them independently and the difficulties to achieve economies of scales have proven to be a serious hindrance to international Telematics Service Providers in stepping into the CEE markets.
For international players the CEE markets do not provide a sufficient opportunity and compare badly with the market mentioned earlier.
This vacuum has created a great opportunity for local, small and agile players to approach insurance companies directly. This has been especially the case in markets where the park falls below 3 Million vehicles.
We are seeing very successful insurance telematics service providers in Croatia for example. With low premium and high hardware cost, they have had to address the insurance industry from a completely different angle. One of TSPs there is a spin-off of a large digital marketing agency in South-East Europe with experience in developing marketing strategies for leading consumer brands. They are now using that experience to redefine the insurer proposition as well as the level of engagement the insurer has to establish with its clients. Technology comes afterwards as an attraction and communication tool.
The other type of company likely to succeed in UBI for the CEE market is the local Fleet Management System provider.
FMS providers have a head start with the technology, the data and even the customers. They are however often missing a suitable offer and the necessary know-how to deal with the insurance business. Insurance companies are not just another fleet and unless the proposition is tailored specifically, we believe only a few will be successful in addressing the UBI opportunity.
In addition, the competition in FMS is such that there is no real need to invest immediately outside their core competence. Today the activity in UBI for FMS providers is measured only in their number of pilots, not market launches. That will change rapidly as national FMS leaders start emerging and their market share allows them to divest time and efforts on the insurance vertical.
All in all, the CEE markets are yet in their infancy and about 5 years behind the UK. It will take time for the supporting industry to develop, and for a successful proposition to make its mark and show the way to other insurers.
Marijan Mumdziev is a Senior Expert working with PTOLEMUS Consulting Group from Vienna. He is presently helping a number of insurance companies to identify their opportunities in the Central and Eastern European markets.