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In continuation with the earlier blog Top Use Cases for IoT in Property and Casualty Insurance, Sourish and I will now discuss an ancillary of IoT ¾ Telematics. In this blog, we will explore Telematics powered Usage Based Insurance (UBI) and its relevance and applicability in the Auto Insurance business today. Telematics is all set to bring disruption right into our homes, starting with our driveways and garages. Read on…

The Personal Auto Insurance segment has been considered a low-profit-margin and a high churn business since it is “Cost” that drives consumers in this segment. The segment has also been dragged down because of traditional pricing models coupled with legacy technology. The latter has been unable to keep up with the advent of new data/information sources to improve both the top line and bottom line of this business. On the other hand, the Internet of Everything (IoE) brings to Insurers, the ability to control their Loss Ratios and overall Combined Ratios, thereby freeing up capital for innovation leading to higher customer loyalty.

The business model of Auto insurance is the first model that is being disrupted by Telematics, a portmanteau of Telecommunications & Informatics. The Telematics model initially gained momentum in the Auto insurance business for its ability to track vehicle usage either directly or through a smartphone using a device installed in the vehicles. Following this innovation, adoption of Usage Based Insurance (UBI) among car Insurers moved from Pay As You Drive Insurance - PAYD to Pay How You Drive Insurance – PHYD, to Control Your Drive Insurance – CYD.

The Usage-Based car Insurance business model gathered traction with Personal Auto business stakeholders and later towards commercial fleet Auto insurance segments. Today, leading Auto insurers around the globe are undertaking pilots using Telematics. Similarly, start-ups in the Australian market are also actively investing time and money in Telematics to get closer to their client base. Needless to say, Telematics in Auto insurance is here to stay and improve our lives.

Benefits of Telematics in Auto insurance

Utilization of Telematics in Auto insurance helps in:

  • Understanding Driving behaviour¾ Do your speed? Do you accelerate or brake often? Do you corner too aggressively?
  • Understanding Driving imperatives¾Do you drive to work? Do you drive during peak hours? Do you drive only during weekends?
  • Understanding the usage, wear and tear of the vehicle so as to trigger alerts for timely servicing and repair
  • Understanding whether or not you need roadside assistance, medical support or towing in case of an accident


High-level workflow for Telematics in Auto Insurance

Analysts predict that Telematics powered “Connected Cars” will generate 25GB of data every hour¾an equivalent of 12 full-length HD movies! Currently, around 12 million Auto insurance customers subscribe to UBI globally. This is expected to increase to 142 million by 2023.

Now that would be a treasure trove of information about your driving habits, driving locations, and preferences. These insights help insurers measure and monitor risk exposure based on driving efficiency. This would further help Insurers in the following ways:

  • Create products that are unique to the individual
  • Provide accurate premium pricing specific to the individual
  • Provide proactive real-time and contextual driving tips to drivers based on driving behavior
  • Improve efficiency in claims settlement and risk management
  • Keep the ecosystem of roadside assistance providers and repairers, better appraised
  • Significantly improve Straight Through Processing

Telematics in Auto insurance can remove a lot of friction in the entire insurance supply chain, especially in the areas of underwriting, customer servicing, and claims management. Telematics as a whole can lead to only one possible outcome. A much tighter coupling with your customer base and therefore, a significantly higher level of loyalty from your customers. Historically, the companies that flourished, have had a very loyal customer base. These customers have brought in other referral customers and the Insurers have grown through the goodwill of their happy customer base.

In our subsequent posts, we will delve deeper into the role of Telematics in Auto insurance in the areas of Underwriting, Customer Engagement, and Claims Management. We will also explore how devices and telematics can help insurers get ahead in each of these segments.

Of course, there are bound to be questioned on data and information privacy. This could range from how it is gathered, transmitted, stored and monetized to who can see my personal information, who can access it, delete it and so on. These are all valid questions and we will address each of them in the course of this series. Stay tuned….

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About the Author

Ramaswamy Tanjore
Business Architect - Property & Casualty Insurance

Ramaswamy has more than 20 years experience within Core Insurance Operations and IT industry with a focus on delivering innovative and domain-led IT solutions for P&C Insurers.

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