Insight Report: Technology in Action – A Roadmap for Insurance Telematics

Date: 2015-09

“Telematics has redefined the way motor insurance products are designed and marketed. As a disruptive technology in the insurance industry, insurance telematics offers huge growth potential as well as many challenges for motor insurers. It has brought the pricing of motor insurance to the discretion of customers, redefining the customer experience. Although insurance telematics is mostly used as a niche product to target high-risk drivers such as young motorists, its popularity during 2009–2013 has brought it into the mainstream of motor insurance business. Insurers, as well as government and vehicle manufacturers, are promoting initiatives to make telematics a mass-market product. Insurance telematics is widely seen as the future of motor insurance.

Demand for insurance telematics expected to soar over 2013–2018
The insurance telematics market is in a nascent stage. The US, Italy and the UK are the early adopters of insurance telematics products, and Italy is currently the most mature market with a penetration rate of 4% at the end of 2013. The estimated global sale of insurance telematics products increased to 4.5 million as of December 2013, with an estimated market size of US$4 billion in terms of gross written premium. The potential of telematics technology to offer a win-win business relation between insurer and policyholder is driving rapid growth of insurance telematics products in the European and US markets. Global sales of insurance telematics products are projected to grow at a CAGR of 80.20% over 2013–2018, and the subscriber base is expected to reach 85.5 million in 2018. The growth in the insurance telematics market over 2013–2018 is expected to be driven by increased adoption of telematics products in the UK, the US, and Italy.

Value-added services expected to define the future insurance telematics offerings
Initial growth in the insurance telematics market will be mostly driven by price discount models. However, with growth in the market and mass adoption of insurance telematics over 2013–2018, price discounts will no longer be helpful in differentiating insurance telematics products. In countries where premium rates and profit margins are low, insurers will not be able to offer great discounts on usage-based insurance products. Insurers are expected to offer telematics-based value-added services for a minimal fee, or free of charge, to attract customers and differentiate products from those of their competitors. Key value-added services that can packaged with insurance telematics products include provision of driving feedback and professional driving instructions, automatic eCall (alert call to emergency services in case of vehicle collision) and bCall (breakdown call) facilities, roadside assistance, emergency services, theft-tracking, remote vehicle monitoring and diagnostic services, traffic and navigation services, fleet management, and infotainment services.

Government initiatives to mandate the use of telematics expected to fuel growth of insurance telematics
Concerns over road safety and increasing rates of auto theft have forced governments in Europe, the US, Brazil and Russia to take initiatives to make it mandatory for vehicle manufacturers to equip vehicles with factory-fitted telematics devices.
Key initiatives include the eCall initiatives in Europe, the Contran 245 legislation in Brazil, mandatory event data recorder legislation in the US, and the Era–Glonass projects in Russia. The European Commission’s eCall initiative, which is expected to be implemented across Europe by the end of 2017 or early 2018, will make it mandatory to provide the telematics-based eCall system in all passenger cars and light commercial vehicles. Similar to eCall are the Era–Glonass projects in Russia, where the government made it mandatory for all cars built in Russia to be equipped with the Era-Glonass satellite tracking system by January 2017. Both initiatives are taken to improve road safety and provide immediate emergency services in emergency situations or serious traffic accidents.
In the US, it has been made mandatory to equip event data recorder systems in all new cars, light trucks, vans and SUVs sold in the US from September 1, 2014 to improve road safety in the country. However, the Mario Monti legislation in Italy and the Contran 245 legislation in Brazil have been introduced primarily to address the very high rate of auto theft. The Mario Monti legislation came into effect in June 2012, whereas the Contran 245 is expected to be implemented from January 1, 2016. Insurers can use the mass adoption of telematics technology to offer low-cost insurance telematics products in the respective countries.

Disruptive technological innovations the biggest challenge for insurance telematics
Technological innovations in the field of connected car systems and automation in driving are expected to revolutionize driving in the future. Vehicle manufacturers and technology providers have collaborated to develop and manufacture self-driven or driverless vehicles; companies such as Google, Volvo, General Motors, Mercedes Benz, Audi, Ford, BMW, Volkswagen, Toyota and Nissan are investing in driverless car technology. The technology is primarily aimed to increase road safety and reduce the rate of traffic accidents.
Google claims to reduce the rate of traffic accidents by 90% with its driverless car technology, and Volvo claims that it will provide an accident-free driving experience with its new cars by 2020. Drivers’ roles in driving these cars are expected to be very limited, or even non-existent, leaving little scope for insurers to track driving behavior and, therefore, making telematics redundant. However, driverless technology is still in a development phase, and it will take around two decades for driverless cars to come to the mainstream of the automobile industry and have a significant impact on insurance and telematics.”

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