We recently reported on AT&T and Verizon aggressively pursuing the telematics market, utilizing their massive connected infrastructures and millions of existing customers to create additional value while chasing the incremental business of delivering telematics services. This will put both wireless carriers on a business footing that will impact the telematics market in ways nobody could have guessed a few years ago.
Other industries are in for massive disruption as well – witness the car insurance industry and how connected mobility and the Internet of Things is creating new ways to insure a car, collect driver data, evaluate driving performance, assess risk and even administer customer billing. Leveraging the use of on-board sensors embedded in the vehicle and increasingly worn on driver and passengers, the telematics system is not just measuring the car’s wear and tear, location, speed and objects nearby, but is also monitoring the state of awareness and health of its occupants, continuously exchanging data with the connected infrastructure and determining how much to charge for coverage based on actual driving behavior and corresponding risk to the insurer. This model of user-based insurance (UBI) is placing the industry into a state of upheaval.
“At some point in time the entire value chain including product, underwriting, pricing, risk assessment, service and claims handling will all be impacted by IoT,” noted Mitch Wein, vice president of research and consulting at Novarica. “As these technologies evolve, there will be a reduction in cost to policyholders and insurers. Insurers should be actively monitoring the potential of IoT and considering how their core systems and processes will handle this additional wealth of data.”
Risk is the key determinant here. Actuaries are employed by insurance companies to calculate risk based on complicated (and quickly outdated) human profiles generated over years of study. With a connected ecosystem of sensors and cloud-based analytics, the massive amounts of data generated in real time can be used to deliver coverage based on the pinpoint calculation of risk with complete accuracy. Theoretically, a driver can now avoid being over- or under-insured, and an insurance firm can provide highly customized insurance products tailored to the exact needs of their clients.
Previous telematics systems required that on-board monitoring devices had to be removed and plugged into a home computer to transmit the data to the carrier. The biggest game-changer to this end is consumer use of smartphones as well as the increased number of cars on the road with built-in connectivity. For example, drivers who own a Ford vehicle equipped with a connected Sync infotainment system can opt into State Farm’s Drive Safe & Save program and can have their premiums adjusted downward based on mileage driven. Without having to perform the addition step of manually transmitting data to the insurer, adaptation of UBI is an eventual certainty.
This is an extremely valuable proposition for consumers, which is why wireless carriers will extend their reach into the user-based insurance market as they chase the incremental business it represents. Carriers are very good at collecting and analyzing data, and they will quickly learn how to use the data to calculate risk, predict loss and identify the value potential to consumers in new ways. Roadside assistance, tailored marketing and predictive connected services are potential new products to be offered by wireless carriers.
Insured by Verizon Wireless? Why not? Verizon already offers its own UBI infrastructure and, like Ford Sync, also works with State Farm’s Drive Safe & Save program. Verizon also recently entered the aftermarket telematics business.
This is one of many new realities for the car insurance industry as it enters the transformational age of connected mobility and the IoT.
Source: IoT — The Internet of Transformation – Insurance Networking News