Viewpoint: M2M UBI solutions and the rise of collaborative business models

Viewpoint: M2M UBI solutions and the rise of collaborative business models

Machine-to-machine (M2M) communications have been on all the mobile network operators’ agendas for the past two years, and the race to provide integrated, industry-specific solutions is now under way. But the development of these solutions is very demanding. Collaboration within the M2M ecosystem can reduce development and product launch time enormously. It also makes new business models possible.

Usage-based insurance (UBI) is a case in point.

Back in 2004, the U.S. insurer GMAC offered customers a special tariff that granted a premium refund if their mileage was low. The vehicle had to be equipped with General Motors’ OnStar module that notified the insurance of the mileage on a monthly basis. But programs of this kind have so far been a niche product. The logistics outlay required to set them up was simply too high. They required each policyholder’s mileage and driving behavior to be determined and evaluated.

With the spread of M2M solutions, these barriers are set to fall. Several mobile network operators have included integrated UBI solutions in their M2M portfolio. Cooperation arrangements, such as those between the telematics service provider DriveFactor and Deutsche Telekom, now enable insurers to purchase from a single source all of the information they need to set up UBI programs. Not only do the programs provide tracking modules for insured vehicles, they also analyze driving data at a fixed price.

The rise of B2B2C

Comprehensive integrated M2M solutions, such as UBI, are based on the B2B2C model. One business partner offers the other a service that the first can convert into an offer for his customers. One of the toughest challenges for this model to work is the development of a coherent value chain that takes into account the interests of all concerned. These include not only the mobile network operators and their partners but also the solution’s business customers and, finally, the end users.

The new UBI offerings of the mobile network operators and their partners develop into new business models for insurers. At present, most insurers are launching UBI programs as low-cost extras that customers can book. If you have a low mileage and drive safely, you pay less for your insurance cover.But the UBI concept could become more than a supplementary offer for insurers. Driving data enables insurers to calculate risks more precisely and to automate processes such as first notice of loss (FNOL).

Once they are in use, M2M solutions lay the groundwork for other services. For example, an automobile repair shop could perform a remote check of the vehicle via its connected on-board computer. Or the anonymized sum of all driving data could be analyzed in a Big Data solution and provide information for efficient traffic planning.

(For more on UBI business models, see Telematics and the business case for UBI and Telematics and UBI challenges for insurers.)

Privacy protection

But this raises issues of protection of privacy. Why should an insurance company know when, where and how I drive? What happens if I exceed a speed limit? Will the police be notified? Customer-friendly solutions must provide the greatest possible degree of transparency about what data is collected, and how it is used.

In this respect, insurers and consumers stand to benefit from the involvement of mobile network operators and their partners.The service offered by Deutsche Telekom and DriveFactor, for example, does not involve sending driving data directly to the insurance company. Instead, the tracking modules send the data to DriveFactor’s servers where the software analyzes it, forwarding the insurer only the analysis.

All that the insurer receives is a total score and not a list of all of the factors on which it is based. Policyholders, in contrast, can check their individual scores on a web portal and work out how their total scores came about.

Connected future

If the Internet of Things continues to develop at the current rate, we are heading toward a networking of vehicles and urban infrastructures that will redefine our current concept of mobility.

An example is the self-navigating car that makes its way safely through the traffic without the driver having to do anything. Self-navigating cars would fulfill all of the criteria for the lowest insurance tariff. They brake and accelerate evenly, and they never exceed the speed limit. In many ways, UBI offers a foretaste of the traffic of the future. It motivates motorists to adopt a predictable driving style and, thereby, to reduce the risk of accidents to a minimum.

The scenario of self-navigating vehicles may still be a vision of the future, but M2M offerings, such as usage-based motor insurance, are already suitable for general use. And they have a high utility value. That is the deciding factor in whether an M2M solution will prevail or not.

Jürgen Hase is vice president of M2M Competence Center, Deutsche Telekom.

For all the latest telematics trends, check out Insurance Telematics USA 2013 on Sept. 4-5 in Chicago, Telematics Brazil & LATAM 2013 on Sept. 11-12 in Sao Paulo, Brazil, Telematics Japan/China 2013 on Oct. 8-10 in Tokyo, Telematics Munich 2013 on Nov. 11-12 in Munich, Germany, Telematics for Fleet Management USA 2013 on Nov. 20-21 in Atlanta, Georgia, and Content and Apps for Automotive USA 2013 on Dec. 11-12 in San Francisco.

For exclusive telematics business analysis and insight, check out TU’s reports: Telematics Connectivity Strategies Report 2013The Automotive HMI Report 2013Insurance Telematics Report 2013 and Fleet & Asset Management Report 2012.

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