Telematics: The Next Wave of Insurance Technology Growth

Let’s be honest: Most insurance customers view policy shopping as a necessary evil. You’ve got to bite the bullet and pay whichever premium you’re offered based on decades-old rules.

This leaves many frustrated.

Yet in the past decade, the world around us has changed a lot.

Customer experience (CX) now trumps price and product as the biggest brand differentiator in nearly every industry.

Digital has become the preferred channel of interaction among younger insurance consumers. According to a 2022 SwissRe consumer survey, 48% of consumers across markets purchased insurance policies via an insurer’s app or website in the previous year, while 45% bought a policy from an agent or broker. Shoppers now expect insurers to offer seamless, embedded, personalized experiences akin to those from big tech firms.

At the same time, a car is no longer just a set of wheels and some machinery under the hood. Modern vehicles are connected devices, equipped with advanced electronics, real-time connectivity, and robust computing power.

The above dynamics, paired with other market factors, leave insurers at a curious crossroads: They can keep driving down the same route or take a promising turn towards the emerging market of telematics insurance.

Telematics for insurance: The way to easier distribution and competitive policies

Vehicle telematics is made possible by an external or OEM-embedded device that collects, stores, and exchanges data about vehicle use, driver behavior, maintenance requirements, and automotive servicing.

In other words, telematics provides detailed information on what happens to a car over its lifespan.

Examples of telematics data points include:

  • Vehicle status (RPMs, fuel consumption, harsh braking, engine load, state of charge for EVs, etc.)
  • Asset usage (driving time, distance traveled, speeding, average speed, etc.)
  • Vehicle maintenance (OBD diagnostic trouble codes, failure type information, parameter IDs, ECU information, etc.)

That’s a wealth of information automotive companies (OEMs) already possess — and they will soon get even more.

By 2024, 83% of all new on- and off-road vehicles will have OEM-embedded telematics according to PTOLEMUS.

For consumers, the benefit of telematics in auto insurance is clear: lower premiums.

In the UK, telematics (or black box insurance) policies are already the cheapest option for two-thirds of younger drivers (aged 17–20), who can save as much as £1,307 annually over traditional policies. Over 40% of older drivers can also get premium discounts from such policies. Commercial fleet managers, in turn, gain even more perks from using telematics apart from lower insurance premiums.

And yet…

The global usage-based insurance (UBI) market was a “modest” $18.9 billion in 2021 against the global $777 billion general auto insurance market.

Sure, insurers need to absorb the costs of higher second-hand car prices, more expensive vehicle repairs, and other market forces.

But short-term price hikes won’t protect insurance businesses against larger disruptions such as a decreasing car ownership rate (peak car) and a progressive transition to shared mobility.

In Western countries, the average distance traveled per person by car has been flat or falling since the early 2000s. In the UK, the average motorist drove 7,600 miles in 2018, down from 9,200 in 2002.

The 2030 UK ban on the sale of new petrol and diesel car models and a similar EU measure that will take effect in 2035 will further shake up the auto insurance market.

On the one hand, these changes may leave some insurance players with an unprofitable customer pool. On the other hand, a new generation of connected, autonomous, shared, and electric (CASE) vehicles can open a vast new revenue pool for the industry.

 Source: Intellias