The rapid rise in telematics usage-based insurance (UBI) offered by auto insurers is an opportunity to break out of an otherwise commoditised market, according to new research by Ovum. UBI automatically reports vehicle usage information to insurers, which can vary from simple time and location data, to more complex readings of the way the policyholder is driving. The report, which examines eight of the leading Telematics Service Providers (TSPs), examines the UBI market in detail for the first time. With evolving regulation, advances in technology and the need for differentiation within the insurance market, UBI telematics adoption will continue to increase over the next 24 months.
Adoption is currently being driven by certain customer segments, such as safe and low-mileage drivers, who will benefit from lower premiums. But, UBI is set to become increasingly mainstream and most insurers in mature markets are expected to offer telematics options in the next five years, with all but the largest of these organisations outsourcing significant elements of the data gathering and device support to a TSP.
“There is uncertainty over the widespread adoption of UBI telematics. Growing beyond the relatively small number of early adopters is seen as tricky and this is driving a “wait-and-see” approach among some insurers,” says Charles Juniper, senior analyst, financial services technology, Ovum. “This stance presents a significant risk, as it may prove difficult to rapidly develop the telematics infrastructure and UBI capabilities to challenge the lead of early market entrants.”
Juniper continues: “For telematics UBI to be a success, insurers need to develop propositions that are sufficiently compelling to drive widespread adoption beyond the niche early adopters. In order to not be left behind in the market, insurers must consider launching pilot or trial schemes. This will lead to vital experience and the development of relevant capabilities, such as analytics skills in order to derive insight from telematics data.”
Although there are difficulties in driving demand, telematics UBI will succeed as part of a broader proposition if value-added services are offered. Juniper concludes: “Telematics UBI has the potential to increase the level of insurers’ interaction with policyholders significantly. It can provide a platform for insurance organisations to differentiate their offerings and stand out in a highly commoditised market. If insurers do not recognise and act on this, they will be left behind as this market evolves.”
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