“Usage-based insurance must move to a broader consumer model”

“Usage-based insurance must move to a broader consumer model”

Insurance telematics is quickly growing in importance. The first apps relied purely on monitoring drivers and charging based on a calculation of risk. New apps not only track drivers but also provide added value by giving the driver speed limit advisories and feedback on how he or she is driving. In the near future, these value-added services will expand to include speed limit warnings, safe speed calculations for upcoming curves, and advice on the best gear in which to drive to reduce CO2 emissions and maximize fuel economy. Other warnings, such as when the car is approaching known hazards, will also become available in the near future.

NAVTEQ’s ADAS focus is on how, outside of navigation, maps can enable and enhance driver assistance, active safety, pay-as-you-drive (PAYD) insurance, and fuel efficiency. Maps bring added value, to the insurance company, to the driver, and to the insurance telematics proposition. Our focus is on adding value in applications and more services in the vehicle. Business cases support the use of accurate street level maps as part of an overall insurance telematics offering, and we have supported activities by our partners to bring PAYD and pay-how-you-drive (PHYD) solutions to the market.

Insurance providers operate in a fiercely competitive market, resulting in smaller margins. Insurers have struggled to develop profitable business cases, when you take into account the cost of the hardware and software development and telecoms services. Putting more value-added services in vehicle above standard insurance telematics is a straightforward way to make the business case and to provide service offerings that appeal to drivers, such as navigation and traffic information, parking and hotel availability, congestion charging and reservations. A coordinated and open approach is needed to allow these non-insurance services to be offered. These value-added services can be resident in the vehicle or available via apps on the back-end server. Either way, they should be transparent to the end consumer in terms of service level as well as price.

The total costs and prices for usage-based insurance must move from a niche enterprise solution to one that can be applied to a broader consumer model. Insurance premium savings will drive this, while additional services will provide return on investment for insurance companies. It is also important to draw up agreements on driver scoring so the industry can make informed decisions about what aspects of driver behavior constitute good insurance risk.
The price of hardware will decrease due to economies of scale, and functionality will grow with additional value-added services. Current systems reveal the location of drivers to insurance companies, but in the future location information will not be sent outside the vehicle, avoiding concerns about the Big Brother effect. The analysis of driving behavior and associated risk will be calculated in the vehicle at renewal, thereby protecting privacy. If the industry makes sure the hardware can support multiple applications, then initiatives like eCall will lead to further uptake of usage-based insurance.

Auto OEMs are growing in importance as telematics is implemented in car design. If open platforms are successful, many more apps will become available within the vehicle. If the cost of the hardware and communications can be shared among these apps, then the market is ready for strong growth. The OEMs’ role is critical, since they need to install open platforms to get the added value.

Insurance telematics is just starting to gain traction with drivers and insurance companies. If value-added services can be supplied directly from the car to these open platforms, it’s likely that we’ll see PAYD on smartphones. If insurance telematics providers can make data exchange agreements allowing car owners to subscribe to any insurance product from any TSP, then PAYD will appeal to many more drivers. As business models mature, insurance companies will have greater flexibility to adopt longer-term contracts and move toward leasing models for telematics hardware.

For all the latest on insurance telematics, join the sector’s other key players at Insurance Telematics Europe 2011 on May 4-5 in London and at Insurance Telematics USA 2011 on September 8-9 in Chicago.

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