Data collection and management has traditionally been one of the auto insurance industry’s greatest assets. The auto insurance industry is facing a historic transformation challenge, due to the increasing sophistication of electronics in vehicles and the ubiquity of wireless connectivity.
With the incorporation of new digital technologies in automobiles, the door has been opened to the development of sophisticated electronic management and effective operating control systems. In addition, the emergence of satellite navigation technology and the global positioning system has paved the way for the rapid development and successful implementation of the telematics system. Through the integration of these new systems, vehicle telematics can now provide detailed driving behavior data, with precise time and location, and communicate it to a remote central location.
The rise of usage-based insurance (UBI) with telematics support has ushered in a new era in the field of auto insurance. Automotive telematics, integrated navigation, and mobile computing and communication technology directly monitor consumers’ driving behaviour. It allows insurers to use real risk factors to accurately assess risks and develop appropriate UBI rating plans.
Growing consumer interest in in-car connectivity has contributed to the appeal of insurer telematics programs. The data recorded on telematics devices can be used to develop accurate rates, develop the granularity of risk management techniques, and minimize losses by providing better claims assessments.
With the rapid advancement of technology, insurers’ telematics programs are expanding beyond premium discounts. They now include other value-added services based on the priority of competitiveness and consumer loyalty.
There is a commonly perceived notion that telematics means usage-based insurance. But, telematics has expanded much more. Insurance companies are now looking to telematics in loss control, claims adjustment, fleet management and more as they strive to gain a competitive advantage.
Apart from this, carriers are turning to telematics in automotive and maintenance book management. Today, more insurance companies are testing additional telematics-based services. These services also include roadside assistance and travel assistance, assessment of your position and needs, and other concierge-type services. This is a radical departure from traditional insurance, which tries to differentiate and appreciate “safe” drivers.
The key drivers for the growth of telematics-based UBI are the abundant benefits for both consumers and insurers. For consumers, the benefits include increased security, a better claims experience and potentially lower premiums, while for insurers the main benefits are better risk pricing, mitigating adverse selection, lower costs of claims, improve brand recognition and loyalty, and change risk behavior. To help in the development of a competitive market for insurers, the telematics system finally fulfills the promise of being a valuable tool not only for insurers but also for consumers and society in general.
Supported by an effective telematics system, insurers are investing in their ability to collect, store and analyze variable data to solve complex problems in order to remain a viable and profitable business. Auto insurance is fast becoming a big data industry, with telematics-based UBI poised to potentially change the insurance business as we know it.
Today’s cars can park themselves, help avoid traffic, and also find the nearest gas station when the tank is low. Behind these new fuel cells and connected cars is the next big disruptor in the automotive industry. In the very near future it will be the norm for cars to be autonomous.
For insurers, however, these innovations are disrupting the traditional auto insurance landscape, while also posing real challenges that require insurers to rethink their policies, claims processing, and overall business models. Insurers that grow with the evolution of the automotive industry are the ones that can secure their place. A dynamic insurance company must understand new forms of data that will prove operational as innovative technologies and social norms emerge.
The introduction of telematics has already made significant changes in the industry. As the consumer becomes more accepting of technology, the number of policyholders willing to adopt telematics is also likely to increase dramatically.
The basic idea of telematics is to analyze risk at the individual level. In addition to the more traditional factors such as age, gender and experience, actual mileage traveled has also been added. Now telematics comes with the promise of adding more precise factors by calculating actual driving behavior by analyzing hard braking or swerving. Ultimately, an insurer can measure how a car is driven along with the situation, such as the time of day and the weather and traffic conditions.