Auto Insurance Telematics Poised for Explosive Growth

By Peter Bernstein
Senior Editor

Smart cars are getting smarter and have become foundational elements of our increasingly connected world. The data they generate pertaining to things like driver habits, the car condition and adherence to maintenance best practices, where the car is driven, where it calls home, etc. are all critical in determining insurance premiums. In fact, they are what will enable insurers the ability to reward customers who are good drivers and good owners while charging higher rates for those who are less diligent.  This is Big Data at work, and it is only going to become more important as we move toward the era of driverless automobiles.

A recent addition to ResearchMoz’s report library that those in the insurance industry, particularly those who are deeply involved in automobile and other types of roadway transportation, may wish to review is, "Insight Report: Technology in Action - A Roadmap for Insurance Telematics," which sheds light on one of the most data intensive driven (pardon the pun) insurance areas.

Covering all the insurance telematics bases

As the authors point out, telematics has redefined the way motor insurance products are designed and marketed, and is a substantial growth opportunity for them. And, as they note, “It has brought the pricing of motor insurance to the discretion of customers, redefining the customer experience.” Once targeted as a means to better price insurance for high-risk drivers, insurers, as well as government and vehicle manufacturers, have enthusiastically started promoting the pervasive use of telematics as a means to enhance public safety a mass-market product. Insurance telematics is widely seen as the future of motor insurance.

Some interesting factoids from the report include:

• The estimated global sale of insurance telematics products increased to 4.5 million as of December 2013, with an estimated market size of $4 billion in terms of gross written premium.
• Global sales of insurance telematics products are projected to grow at a CAGR of 80.20 percent over 2013–2018
• The subscriber base is expected to reach 85.5 million in 2018

Included in the report are: predictions about value-added services insurers are likely to use to differentiate themselves in hotly contested markets, and infotainment services;  key government initiatives that are behind increasing adoption rates such as the eCall initiatives in Europe, the Contran 245 legislation in Brazil, mandatory event data recorder legislation in the U.S., and the Era–Glonass projects in Russia; and sections that breakdown the markets by region and looks at technology trends that are likely to accelerate the market as well.

The move to usage-based/contextual-based pricing has become common practice in many industries as we all know from our flying experiences. The extensive use of sensors and sophisticated connected software in automobiles is what will enable insurers in the future to do three important things:

• In conjunction with governments initiatives and auto manufacturers to become part of service ecosystems they can significantly help improve auto safety.
• Create differentiated value through better packaging and pricing that aligns with customer behaviors.
• Create differentiated value based on a better user experience.

As the report notes, this is a nascent market that really is poised for explosive growth.