Telematics is finally gaining significant acceleration in the global automotive industry. Consider that the global vehicle telematics market is currently projected to reach nearly $56 billion by 2022, according to ResearchAndMarkets.com. And that’s just the tip of the iceberg.
Telematics puts the power of data into the hands of insurers. By proactively monitoring and communicating with drivers, insurers can:
- Lower the risk of claims
- Help drivers eliminate unsafe behaviors
- Teach drivers new ways to improve safety
- Build long-term customer loyalty
- Price premiums more beneficially for both the driver and insurer.
The McKinsey Center for Future Mobility predicts that by 2030, telematics will be a $750 billion industry world wide. “After decades as a niche feature, telematics is merging into the automotive mainstream,” McKinsey reports.
As a result, insurance telematics – loosely defined as using telematics sensor data to provide insurance ratings and services to policyholders – is also poised to explode. In fact, the insurance telematics consulting organization Ptolemus suggests that insurance telematics programs are expected to hit 100 million policies by 2020.
Telematics is finally at a point of mass adoption after years of sitting on the sidelines as an optional add-on. So why the recent surge? The answer stems from three primary trends. When combined, these trends have the power to fuel unprecedented demand for insurance telematics in the years ahead.
The trends are:
- Changes in the way consumers prefer to buy insurance
- Changes in the way insurance providers assess and mitigate risk
- Major advancements in telematics technology
The Impact of Personal Connectivity
Consumers now have more power over an insurance purchase than ever before. They can buy whatever they want, whenever they want it, and through whatever shopping channel they prefer. This omni-channel shopping environment has turned the traditional insurance purchasing process on its head.
Experts estimate that roughly 60% of all online searches originate on a mobile phone, and nearly two out of three Americans own a smartphone. It follows that JD Power has reported that 74% of insurance shoppers use websites or aggregators for research or to obtain insurance quotes.
Better connectivity and information on demand are also fueling consumer buying preference. Smartphones, Bluetooth, near-field communications (NFC), and other emerging technologies make it easier to connect devices, people and companies. Personal connectivity is at the heart of insurance telematics. Consumers have never before had the same opportunity to actively control their insurance rates. With insurance telematics, it’s simple: Drive well, earn and receive discounts.
Tangible Data Lowers Risk
The ability to measure, monitor and improve driver safety using data from insurance telematics programs creates a completely new paradigm for assessing driver risk and premiums. It also creates a significant opportunity for insurance providers to increase profits.
Insurance telematics programs creates a completely new paradigm for assessing driver risk and premiums. It also creates a significant opportunity for insurance providers to increase profits.
Insurance telematics provides an actual picture of each driver’s specific, personalized driving performance, including both safe and unsafe behaviors . Such transparency gives insurers exactly what they need for more accurate underwriting and pricing of driving risks.
Consequently, the opportunities for insurers to increase profits and customer engagement are unarguable. My company, The Floow, recently researched telematics-based driver safety scores to see how they correlate with the potential for claims, as well as to validate the impact and safety benefits of coaching. Our study found that drivers in the lowest scoring decile averaged one claim every two years.
Conversely, drivers with the highest safety score in the top decile averaged one claim every 20 years. The difference speaks for itself. Another study showed demonstrable benefits from coaching drivers who originally scored in the lowest decile, which is especially impressive when you consider these lowest decile drivers are historically those with the highest frequency and severity of claims.
Telematics are Advancing
Perhaps the biggest reason why telematics is moving into the mainstream so rapidly is the progress of the technology itself. Although embedded telematics technology currently encompasses a fraction of the nearly 270 million registered U.S. vehicles, high-quality, aftermarket telematics solutions are becoming ubiquitous.
From a market-demand perspective, the most significant advancement is the ability to use a driver’s smartphone as a telematics collection tool. Although OBD II and professionally installed telematics devices (once thought to be the gold-standard of data collection) are still viable and applicable for certain situations and business needs, they’re no longer the only options available for capturing high-quality, actuarial grade telematics data.
The smartphone has quickly become the preferred sensor for insurance telematics. Case in point, nine of the top 10 US-based insurers are using smartphones as a sensor for collecting insurance telematics data. Any driver with a smartphone can get easy access and information from an advanced telematics platform for every single trip.
With the right kind of feedback and coaching, demand for telematics will continue to accelerate as added safety and lower premium costs offer tangible proof if its benefits.
Article By: John W. Kramer
Source: Property Casualty 360