We are hearing a lot about disruption that will hit the insurance industry as the result of InsureTech and digital transformation. However, widespread enterprise-wide implementations are some ways out, so we won’t see the impact of all of the moving pieces. But there is one exception: Telematics / UBI.
Telematics is proven and poised for expansion
In late 2015, Canadian Underwriter reported that Ptolemus Consulting Group felt that all the stars were aligned to have Telematics ‘uber-ize’ the auto insurance industry. In a press release covering its 2016 edition of its usage-based insurance global study, Ptolemus reported that “With 230 active programmes and 12 million customers, usage-based insurance (UBI) is now a truly global phenomenon that reaches twice as many countries as two years ago.”
Ptolemus’ managing director, Frederic Bruneteau, said “Like Uber, [UBI] will radically transform the business model of auto insurance, from underwriting to claims management. The days of insurers who rely on purely statistical models are counted.”
The report projects that by 2030, almost 50% of the world’s vehicles will be insured using telematics-enabled UBI. These policies are projected to generate 250 billion euros in premiums.
And the opinion has support…
IHS Automotive – an automotive advisory group –gave support to this sanguine prospect in a May 2016 news release. IHS confirmed Ptolemus’ estimation that in 2015, approximately 12 million consumers globally subscribed to UBI.
As with Ptolemus, IHS sees the curve change dramatically. The user base is expected to grow to 142 million by 2023.
IHS notes that there will be growth in many countries, two of which – the US and China – will cause the majority of global expansion.
But there may be a fork in the road
Most analysts – including Ptolemus and IHS – note that the implementation of smart phones as the Telematics/UBI communication device will simplify implementations and standardize processes. Also, you might notice car ads on TV that show how vehicles are turning into mobile WiFi hubs to support devices and applications.
IHS takes the analysis a bit further, however. In the release IHS says:
The connected car is well on its way, and the vehicle itself may well be the ultimate UBI device. By the time connected cars are common on the world’s roads, it could also be that, because of product innovation and the rise of alternative mobility models such as ride sharing and car leasing, the UBI market will not be anything like that of today (emphasis supplied).
So what will this future look like?
The forward view getting clearer …
Since 2013, our friend Catherine Kargas from Marcon has been helping us understand that there are a number of forces changing the role of automobiles in the future portfolio of transportation. Catherine was one of the early prophets who proposed that autonomous vehicles could change the risk profile of personal and commercial vehicles dramatically.
Donald Light from Celent has been analyzing the technology factors that will impact the insurance product and premiums over the next few decades, and how insurers might respond. In a recently updated report, Light notes that the technologies will likely transform business models to respond to improved safety for all vehicles generally and autonomous vehicles specifically.
… and more impactful
There are two pressure points:
- Improved safety of vehicles lowers frequency and severity of claims;
- Self-driving or autonomous vehicles move the responsibility from the driver to the manufacturer of the vehicle and its technology, overtaking elements of personal / commercial automobile coverages.
All in, Light projects that the diminution of risk could put downward pressure on rates and premiums. Light’s recent update suggests a 22.4% loss of premium revenues by 2030.
Is there a divorce on the horizon?
It seems clear that Telematics is a critically important element in the connected world of the Internet of Things (IoT). The issue is whether the usage-based insurance component will carry the same cachet.
What do you think? Is this the future you see? More significantly, could this be a model for future InsureTech-driven programs?
I was recently made aware of another issue regarding telematics dongles that insurers need to keep in mind. The dongles are apparently a weakness that hackers can exploit to hack into a vehicle. Insurers that use such telematics devices would be well advised to replace them with more secure means of tracking driving behaviour.