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User-based Insurance Gaining in Auto Aftermarket Popularity says Frost & Sullivan

June 30, 2014

The automobile insurance industry is undergoing a silent revolution. Where risks were once assessed on the basis of age, the model of the car and other statistical data, insurers are adopting a new approach: assessing risk on the basis of real-time, dynamic data. Thus, user-based insurance (UBI) is slowly becoming the most popular service in the North American market with the automobile aftermarket a significant opportunity as recent work by research firm Frost & Sullivan (News - Alert) highlights.

UBI helps insurers as they benefit from the ability to detect and retain the lowest-risk drivers. In turn, drivers benefit from significant discounts on their premiums which can serve to encourage better driver behavior.

With vehicle owners keen to adopt good driving practices, the do-it-yourself on-board diagnostics (OBD)-II telematics applications market is expected to receive a significant boost. "Growth will primarily be driven by service revenue, as the installed base of plug-and-play OBD-II devices grows rapidly," said Anuj Monga, senior research analyst at Frost & Sullivan Automotive & Transportation.

According to analysts, services such as personal asset tracking and vehicle diagnosis will gain traction and further propel the aftermarket. Frost & Sullivan is project that by 2020 the North American Automotive Aftermarket is estimated to reach $1.6 billion.

Moving beyond UBI, connected-car insurance is a platform that empowers insurers. Smartphone applications rein in distracted driving, helping to reduce accidents and injuries. Plus, advances in M2M on-board telematics technologies are creating new opportunities for connected-car insurance.

The researchers also noted that smartphones are a low-cost alternative to OBD-II devices, as they can be loaded with applications capable of performing basic telematics features. Hence, the telematics aftermarket will have to contend with the challenges posed by the smartphone market.

However, OBD-II devices score over smartphones in terms of reliability and security. Market realities are that insurers tend to prefer in-vehicle, OBD (on-board diagnostics) dongles instead of the smartphone apps as these devices can easily plug into the vehicle's OBD-II service port. They also provide more accurate driving data, are affordable and easy to install.

"Educating vehicle owners and fleets on the cost benefits of OBD-II devices and services will be key to expanding the telematics aftermarket," noted Monga.

Edited by Peter Bernstein

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