The New Auto Insurance Ecosystem: Telematics, Mobility and the Connected Car

With the increased use of mobile communications, the stage is set for property and casualty insurers to develop more meaningful and mutually beneficial relationships with policyholders. Nowhere is this more clear than in auto/motor insurance, where advances in machine-to-machine (M2M) communication, or telematics, are rippling across the marketplace, generating data to more precisely assess risk and reward for policyholders who adhere to safe driving practices. For some time, auto manufacturers have provided connected vehicle services to discerning drivers. This includes GPS, emergency notification, roadside assistance, concierge services and other offerings. Today, devices self-installed or plugged into a vehicle’s onboard diagnostics (OBD) port, or professionally-installed black boxes, transmit driving behavior and mileage data directly to carriers’ back offices. As a result, many carriers and brokers worldwide are leveraging telematics data to create more precise rating variables that underpin new usage-based insurance (UBI) products. This represents a sea change in policy underwriting, where models have traditionally assessed risk and determined premiums based on group behavior (typically demographics-based) and proxy variables such as credit scores.1 As insurers’ risk models become more sophisticated through the use of analytics applied to UBI-generated data, a more precise driver profile will emerge. Analytics will also streamline and automate claims processes with real-time alerts and triggers, further reducing expenses for the insurer and validating a better segmented book of business. As such, telematics-supported UBI programs are upending the traditional auto insurance business model. These programs benefit both insurers and consumers by providing data for better risk assessment, as well as incentive-based, “pay-asyou-drive” (PAYD) programs. This translates into more accurately priced insurance premiums and discounts for good driving behavior. By embracing telematics-informed UBI programs, our research shows, insurers can reap substantial returns on investment, as well as secure a stronger book of business, with reduced losses

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