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


Published on

Insurers and auto manufacturers worldwide have set their focus on telematics, resulting in a convergence of new business models for connected consumer lifestyles.

  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

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

  1. 1. • Cognizant ReportsThe New Auto Insurance Ecosystem:Telematics, Mobility and the Connected CarInsurers and auto manufacturers worldwide have set their focus ontelematics as the next wave of creating deeper customer relationships,resulting in a convergence of new business models for the connectedlifestyle. Executive Summary have traditionally assessed risk and determined With the increased use of mobile communications, premiums based on group behavior (typically the stage is set for property and casualty insurers demographics-based) and proxy variables such as to develop more meaningful and mutually ben- credit scores.1 eficial relationships with policyholders. Nowhere is this more clear than in auto/motor insurance, As insurers’ risk models become more sophis- where advances in machine-to-machine (M2M) ticated through the use of analytics applied to communication, or telematics, are rippling across UBI-generated data, a more precise driver profile the marketplace, generating data to more pre- will emerge. Analytics will also streamline and cisely assess risk and reward for policyholders automate claims processes with real-time alerts who adhere to safe driving practices. and triggers, further reducing expenses for the insurer and validating a better segmented book For some time, auto manufacturers have of business. provided connected vehicle services to discern- ing drivers. This includes GPS, emergency noti- As such, telematics-supported UBI programs are fication, roadside assistance, concierge services upending the traditional auto insurance business and other offerings. Today, devices self-installed model. These programs benefit both insurers or plugged into a vehicle’s onboard diagnos- and consumers by providing data for better risk tics (OBD) port, or professionally-installed black assessment, as well as incentive-based, “pay-as- boxes, transmit driving behavior and mileage you-drive” (PAYD) programs. This translates into data directly to carriers’ back offices. As a result, more accurately priced insurance premiums and many carriers and brokers worldwide are lever- discounts for good driving behavior. By embracing aging telematics data to create more precise telematics-informed UBI programs, our research rating variables that underpin new usage-based shows, insurers can reap substantial returns on insurance (UBI) products. This represents a sea investment, as well as secure a stronger book of change in policy underwriting, where models business, with reduced losses. cognizant reports | august 2012
  2. 2. UBI programs are moving into the mainstream, insurers are increasingly using consumer behav-despite numerous technological, regulatory ior data generated by these sources to help craftand privacy challenges. Many major insurers UBI Europe and the U.S. already offer them, andcar makers are increasingly rolling out vehicles Rising penetration of embedded telematicswith embedded telematics, primarily to monitor devices, as well as smartphones integrated withvehicle safety, performance and failures. This vehicle connectivity systems, offer insurers a pow-convergence of safe driving and technology erful medium to reduce risk, optimize processes,advances aligns with insurers’ incentives to add serve policyholders in real-time and delighttelematics-based UBI products to their offerings customers. According to Ptolemus Consultingin order to attract drivers with better risk profiles Group, there have been 54 commercial launchesthrough opt-in programs. and 94 trials of UBI underway worldwide, indicat- ing that UBI is reaching maturity.2For their part, customers are increasingly express-ing interest in UBI products to help reduce their We believe the growth of the UBI market will beinsurance costs. This is predicated on the UBI fueled primarily by the following forces:model’s ability to make insurance more afford-able for safe drivers, who have traditionally been • Evolution of a new insurance ecosystem.treated on par with high-risk users. As insurers > Growth of embedded telematics solutions.move to the next phase of UBI in the enterprise > Connected vehicles.and adopt new business models, customer delight > Mobility’s impact on UBI.will be the focus, not the exception, as companiesthat embrace the changing landscape of mobility, • Increasing adoption of UBI by carriers andtelematics and an increasingly connected lifestyle customers.will create new services and experiences for their • Regulatory changes supporting telematicspolicyholders. adoption.UBI: Driving Factors Evolution of a New Insurance EcosystemThe insurance industry is witnessing a major As the demand for connected cars and lifestylesshift in how insurance is bought and sold. continues to rise, players in the new ecosystemCustomized products and services are increas- — automakers, insurers, service providers — mustingly being developed, thanks to technology that work together to benefit from the rich customercan derive meaningful insights from customer data that is increasingly available. Doing so willbehavior captured at a multitude of touchpoints help all constituents offer value-added servicesand through various means (e.g., smartphones, that can potentially drive revenue growth, reduceconnected cars, telematics devices). Auto costs and improve the bottom line. While in-carU.S. Telematics Sales GrowthSales of telematics units (OEM installed and Sales of OEM installed telematics systems, by typeaftermarket devices) 35 18 16 30 14 CAGR 25 16.5% 12 MillionsMillions CAGR 20 10 22.2% 15 8 6 10 4 5 2 0 0 2011 2017 2009 2017 Mobile Device EmbeddedSource: IHS iSuppliFigure 1 cognizant reports 2
  3. 3. connectivity will become ubiquitous, car makers Connected Vehicles: A New Paradigmwill offer it primarily through embedded, tethered Vehicles have evolved from mere transporta-and integrated solutions. The growth in embed- tion mediums to advanced mobile connectivityded telematics, demand for connected-car tech- platforms. At the center of this evolution is thenologies and mobile-based telematics solutions connected-car technology that assists custom-will create huge imperatives for auto insurers and ers in driving safely, avoiding accidents, loweringtheir business models. emissions, benefiting from insurance telematics and enjoying connected lifestyle services, suchGrowth Of Embedded Telematics Solutions as on-demand entertainment, infotainment andAutomotive companies are increasingly embed- concierge services.ding telematics in vehicles to monitor system fail-ures and vehicle performance, while also meeting Consumers’ increasing appetite for in-car con-user demand for wireless connectivity. By the nectivity, along with regulatory mandates forend of 2018, the proportion of new vehicles sold crash notifications and tracking stolen vehi-with embedded telematics is likely to reach 80% cles, are the driving forces behind auto makersof cars on the road in the U.S. and 46% globally, offering connected-car systems (see Figure 3,according to iSuppli.3 The U.S. is forecast for sig- next page). Declining hardware and connectivitynificant growth in the sale of telematics systems costs driven by standardization and economies(see Figure 1, previous page).4 Nearly 4.8 million, of scale are removing the traditional hurdlesor 80% of global plug-in electric vehicles, are that had impeded the growth of connected-caralso expected to come equipped with advanced systems, including high costs, limited consumertelematics systems by 2017, according to Pike awareness, privacy and safety concerns.Research.5 Europe is expected to be slightlyahead of North America and Asia Pacific in the Connected vehicle services enable insurers andpenetration of telematics in new cars shipped by car makers to assist customers when emergen-2013, according to ABI Research (see Figure 2). cies arise, enabling significant time savings and optimization of claims processes. In the case ofThe growing volume of vehicles with embedded an accident, connected vehicle services allowdevices is expected to drive down device prices, insurers to keep customers apprised of claimencourage innovation and make it easier for status, close claims faster and gain feedback,insurers and customers to embrace UBI prod- ultimately leading to increased customer satis-ucts. Early signals appear to confirm this trend. faction. In addition, these services improve autoState Farm and GMAC, for example, already offer safety by giving drivers hands-free calling andtheir UBI products to subscribers of GM’s OnStar texting capabilities and providing timely naviga-service, as well as Ford’s Drive Sync program. tion and roadside-assistance services.Penetration of TelematicsPercentage of new cars shipping with telematics 80Penetration (%) 60 40 20 2005 2006 2007 2008 2009 2010 2011 2012 2013 Asia-Pacific Europe North America RoW Source: ABI ResearchFigure 2 cognizant reports 3
  4. 4. Mobility’s Impact On UBI frequently with customers and offering value-Rapid advancements in mobile technology, mobile added services to replace sporadic and oftenapplication software and ubiquitous connectiv- transactional services, insurers can build brandity are reshaping the telematics-supported UBI loyalty and increase customer retention. In amarket. By 2017, car makers are expected to sell highly competitive market with information-savvythree times the number of mobile telematics customers, mobility will play an important role insystems sold in 2009, according to iSuppli.6 marketing, selling and serving new products toSmartphones already have capabilities such as attract and retain customers, especially youngerGPS and accelerometers — connectivity simi- drivers more prone to using such technologies.lar to telematics devices — enabling insurers touse them as viable aftermarket alternatives to Increasing Adoption of UBI by Carriers andon-board devices. Ptolemus Consulting estimates Customersthat smartphones will soon become the next The number of insurance telematics users is“onboard unit” of the insurance industry. projected to reach 89 million globally by 2017, growing at a compound annual growth rateFrost & Sullivan forecasts smartphone penetra- (CAGR) of 90% from the 1.85 million estimatedtion in North America to grow from 23.9% in in 2010.7 Europe is expected to lead the insurance2009 to 67.1% percent of subscribers by 2015 telematics market, reaching 44 million users by(see Figure 4, next page). Smartphones’ ability 2017 from the 1.5 million in 2010 (nearly half ofto wirelessly connect to onboard devices using the entire number of users across the globe).8Bluetooth is expected to drive UBI growth. This Moreover, telematics-based insurance is expectedwill make it easy for insurers to use mobile to cover 100 million vehicles by 2020, generatingtelematics applications to track the driving activ- premiums of $60 billion, according to Ptolemusity and behaviors of anyone with a smartphone. Consulting.In addition, using smartphones for insurance Pioneered by carriers such as Progressive almosttelematics solutions will help insurers and car a decade ago, more than half of the leadingmakers easily share critical feedback on driving carriers in the UK and U.S. have a telematicsbehavior with customers. It will also provide insurance program today.9 In the U.S., Progressivecustomers with a transparent and real-time feed- has implemented a UBI product called Snapshotback mechanism to check their driving behavior in over 40 states. Meanwhile, carriers such asand vehicle health stats. Innovative insurers can Allstate, Hartford, GMAC, AAA, Travelers, Safecooffer customers apps and plug-ins to test new and State Farm Insurance are actively conductingtelematics technology. With appropriate incen- their own respective market trials and offerings.tives, customers can be encouraged to participatein such trials. Despite all of this activity in the U.S., European carriers such as Allianz, AXA, Norwich UnionIn an industry with little differentiation in prod- and many innovative brokers are ahead,ucts, and competitors quickly copying innova- having launched UBI programs and installed moretion, customer service is a major area for achiev- telematics units than in the U.S.10ing a competitive edge. Using mobility, insurerscan fundamentally transform their engagement Customers are increasingly indicating inter-with customers. By interacting proactively and est in usage-based insurance offerings thatGlobal OEM Connected Car Systems Year 2012 2017 Penetration (Millions) 11.4 60.1 Year 2012 2016 Shipments (Millions) 8.22 39.5Source: ABI ResearchFigure: 3 cognizant reports 4
  5. 5. reward good driving behavior with lower Regulatory Changes Supporting Telematicspremiums. Already, telematics-enabled UBI pro- Adoptiongrams for personal auto insurance markets are Many regulations are emerging that are expectedbeing offered by carriers across North America to drive telematics adoption and thereby theand Europe. This is critical in markets such as potential for insurers to offer UBI products.the U.S., where many lower-income drivers For instance, the European Court of Justice’sfind that their insurance premiums exceed Gender Ruling prohibits insurers from usingtheir car loan repayments. In the UK, insurance gender as a criterion for underwriting. Telemat-premiums have risen 40% from 2010 to 2011 due ics-based UBI can help carriers by usingto an increase in fraudulent claims. non-gender-related parameters to accurately assess driver risk and comply with this regula-Today, more than two million subscribers spread tion. The European Commission’s eCall,16 Russia’sover five continents subscribe to telematics-sup- ERA-GLONASS17 and Brazil’s SIMRAV18 are allported insurance policies, according to Ptolemus mandates that require vehicles to be fitted withConsulting. The company expects UBI policies to systems to assist drivers in emergencies. Upcom-exceed 140 million by 2020 globally.11 Within five ing mandates such as Contran 24519 requireyears, UBI is expected to account for 20% of all vehicles produced in or imported to Brazil tovehicles insured in the U.S.,12 and by the end of have GPRS20 vehicle tracking modules to reduce2011, Europe had 1,200,000 customers using vehicle theft. The enhanced connectivity gainedtelematics-based PAYD insurance, with a majority through these on-board devices makes it easierconcentrated in France, Spain, Italy and the UK.13 to assist drivers in an emergency and track andFrost & Sullivan projects UBI activations in the recover stolen vehicles.North American market will rise from 137,000 in2010 to 1.1 million by 2017, a 34.66% CAGR.14 Financial Benefits For insurers operating in a challenging environ-In today’s challenging economy, many auto ment, telematics-based UBI presents a valuableinsurance customers are willing to switch car- opportunity to drive down costs throughriers if they are offered discounts on premiums data-driven pricing and pass along discounts(see Figure 5, next page) and rewards for safe to customers, while enhancing the top line anddriving. Moody’s warns that insurers that delay shoring up the bottom line (see Figure 6, page 7).offering UBI will lose business to more proactiveplayers.15 The latter will gain significant competi- • Top-line drivers: Popular UBI products such astive advantage in pricing and policy retention by manage-how-you-drive (MHYD)21 and PAYD22using precision pricing models that use variables allow carriers to offer premium discountsmore tightly correlated to loss costs. to customers based on certain drivingU.S. Smartphone MarketMobile device connections forecast (North America) 350 Mobile Subscribers (Millions) 300 250 68.9 89.1 117.3 144.3 171.2 193.5 216.6 200 150 100 218.9 202.1 177.9 157.3 136.3 120.7 50 106.3 0 2009 2010 2011 2012 2013 2014 2015 Feature Phones SmartphonesNote: All figures are rounded; the base year is 2009.Source: Frost & SullivanFigure 4 cognizant reports 5
  6. 6. parameters and behaviors. Carriers offer • Significant ROI and bottom-line drivers: discounts of 5% to 10% for just signing up for Claims payout and related expenses consume UBI programs. Leading insurers claim that by up to 80% of insurers’ premium income. The using UBI, customers save 10% to 15% on their following are the key UBI-based bottom-line premiums and that this can increase to 30% drivers: based on their driving behavior and vehicle usage. Embracing UBI allows carriers to retain > Reduced claims volume: UBI programs customers and acquire new ones from compet- encourage safe driving behavior that itors lagging behind this market trend. results in fewer accidents, helping insur- ers reduce claims payout and improve the Additionally, telematics allows insurers to bottom line. According to a Cisco Internet develop new auxiliary revenue channels, as Business Solutions Group (IBSG) report, car makers introduce add-on connected-car vehicle connectivity can contribute 30% to services, such as in-car entertainment, WiFi, 80% of savings in claims and cost contain- real-time navigation and emergency and road- ment. As insurers further analyze driving side assistance. Insurers offering additional behavior, greater insights will emerge that value for the consumer will also offset the ini- will benefit underwriting and claims, as well tial costs of a UBI initiative. as sales and retention. > Reduced claims processing costs: Integration of smartphones with connected- Technologies such as advanced crash car systems also offers a new source of reve- notification can provide first notice of loss nue for players in the insurance telematics sup- (FNOL) for insurers to aid in response time ply chain. By 2016, Juniper Research estimates and triage of claims, generating savings in 92 million vehicles will have smartphone- overall claims expenses. With more accu- integrated technology. Additionally, new pro- rate accident data available in real time — tocols such as MirrorLink from the Connected combined with geospatial data on roadways Car Consortium are expected to make smart- and other factors — insurers can more accu- phone integration a standard feature on new rately and efficiently settle claims, detect vehicle models, according to Juniper. Machina fraud and offer immediate assistance, such Research estimates that by 2020, in-vehi- as emergency response, tow, rental car and cle connectivity in 90% of new cars will add repairs. $600 billion in value to the connected life23 industry (see Figure 7, page 8) and $245 billion Insurers can also deliver detailed accident in revenues from the sale of connected devices information in real-time to service partners and services such as PAYD auto insurance. that offer roadside assistance and repairTelematics IncentivesHow much of a discount would policyholders require to install a telematics device to monitor theirdriving experience? Over 20% 47% 16%-20% 22%Discount 11%-15% 17% 6%-10% 11% 1%-5% 2% 0% 10% 20% 30% 40% 50% Percent of respondentsSource: Deloitte Automobile Consumer Survey 2012Response base: 1,080 auto policyholdersFigure 5 cognizant reports 6
  7. 7. services. This further streamlines claims Insurers have the most to benefit from processing and enables volume discounts, connected cars and telematics. According as they can route claims to authorized and to the Cisco IBSG report referenced earlier, connected service partners. Faster claims vehicle connectivity can save an average processing results in higher customer of $280 per connected vehicle per year satisfaction, lower costs for repair and in crash-related value and an additional towing, and lower risk of disputes and $100 across the insurance value chain (see claim costs — all of which contribute to the Figure 8, page 9).24 Additionally, vehicle bottom line with reduced losses, reduced connectivity can prevent 80% of reported loss expense, reduced severity of claims crashes and reduce 20% to 30% of costs and reduced fraud. incurred in enforcing traffic laws (see Figure 9, page 10).UBI BenefitsECONOMIC BENEFITSTop-Line Drivers Effect ImpactLaunch of UBI products Arrest customer attrition Protect top lineLaunch of UBI products Acquire new customers Drive top-line growthLaunch of UBI products Improve renewal retention Drive top-line growthConnected-car systems Improve customer response time Create customer delight and improve retentionBottom-Line Drivers Effect ImpactUBI-incentivized safe driving Reduce chance of accidents Lower claims volume and costsEvent data generated by telematics Enhance efficiency of claims Lower claims processing costs processingEvent data generated by telematics Enable early detection and Lower fraudulent claims cost prevention of fraudsReduction or elimination of towing Reduce downtime, tow charges, Reduce or eliminate associated costs impound fees and rental car costsAutomated subrogation recovery Establish fault, reduce cycle time Lower claims costs and cost of in claims processing operationsDriving behavior data availability Enable pricing based on risk profiles Lower customer acquisition costsInvestments in technologies to Upfront and ongoing costs: While UBI entails its own set of costs,adopt UBI Devices, connectivity, data capture, they are offset by the net benefits vs. storage, analysis traditional insurance productsSOCIETAL BENEFITSDrivers Effect ImpactEncourage safe driving Reduce chance of accidents Enhance safety levels of citizensEncourage safe driving Reduce chance of accident Create safer roads, less accident- severity and loss of lives prone scenarioFight vehicle theft Allow efficient tracking and Lower societal expenses recovery of vehiclesAccurately assess risk for pricing Reward safe drivers with lower Enable affordable insurance insurance premiumsENVIRONMENTAL BENEFITSDrivers Effect ImpactIncrease use of congestion-free Reduce fuel consumption Create a cleaner environmentroutes and limit vehicle usageData on vehicle health statistics Improve vehicle maintenance Reduce Co2 emissionsSource: Cognizant Research Center AnalysisFigure 6 cognizant reports 7
  8. 8. > Reduced costs related to fraudulent expenses. Additional fees — including consulting, claims: Data from the National Insurance integration, analytics, new services, software and Crime Bureau indicates that more than subscriptions — vary by provider and geography, 10% of P&C claims are fraudulent, adding etc. However, the net benefits of telematics-based up to over $30 billion annually and leading UBI products outweigh the costs incurred. to across-the-board increases in premiums for customers. Using analytics and real- Societal and Environmental Benefits time information generated by telematics There is growing recognition by carriers, devices, insurers can weed out fraudulent customers, regulators, environmentalists and claims. Employing analytics can help insur- consumer and safety advocates that telemat- ers reduce up to 80% of fraudulent claims, ics-based UBI products offer many monetary, according to the same Cisco IBSG report. societal and environmental benefits. UBI provides an incentive for customers to driveTo reap the benefits of UBI, insurers need to safely, thereby reducing accidents, lowering theinvest in telematics devices and infrastructure. severity of accidents and saving lives. OtherThis entails upfront and ongoing costs, includ- benefits include enhanced highway transporta-ing telematics data management, analytics and tion systems, reduced road congestion, reducedconnectivity costs. These costs will vary based costs for recovering stolen vehicles and increasedon whether devices are installed by a third party consumer-oriented services.or are self-installed, as well as data transmissionConnected-Life Business ImpactConnected life is a world where devices that are seamlessly connected to each other allow consumers toenjoy services and experiences on-demand, anywhere and anytime.Category of Impact Type of BenefitConnected-life market revenue Connected PAYD insurance device, device/service management, provision of connectivity and sale of PAYD insurance.Connected-life service improvements The ability to better tailor insurance policies to individual driver needs.Connected-life cost reduction Cost reductions for drivers by paying only for needed coverage; cost reductions for insurers through higher quality information and the ability to better manage risk and enforce policy terms and conditions.Top 10 Connected Applications in 2020 Value to the Connected LifeConnected Car $600 billionClinical Remote Monitoring $350 billionAssisted Living $270 billionHome and Building Security $250 billionPay-As-You-Drive Car Insurance $245 billionNew Business Models for Car Usage $225 billionSmart Meters $105 billionTraffic Management $100 billionElectric Vehicle Charging $75 billionBuilding Automation $40 billionSource: Mobile World CongressFigure 7 cognizant reports 8
  9. 9. UBI also makes insurance more affordable for Challengessafe drivers, who have traditionally been treated Insurers face significant challenges in implement-on par with high-risk users. According to the ing telematics-based UBI. They must overcomeAA British Premium Index, the average cost of region-specific and stringent regulations, cus-car insurance is very high for 17- to 22-year-olds, tomers’ privacy concerns and the need to developaveraging £2,481. In its study of 10,000 driv- capabilities for managing, mining and analyzingers aged 17 to 25 years, Cooperative Insurance complex telematics data, all within a fragmentedCompany (a UK-based carrier) found that those telematics ecosystem.with telematics-based insurance were 20% lesslikely to be involved in a car crash, and their • Regulatory issues: In the U.S., each stateaverage cost of claims was 30% lower than driv- has its own laws and rules for telematics-ers with traditional insurance. The company is, based UBI. Further, each state has differenttherefore, offering safer young drivers discounted requirements covering such products, whichrenewal premiums (£790) that are nearly half its creates operational complexities for cross-average young driver premium (£1,300).25 state carriers. For instance, Illinois requires carriers to publicize their underwritingInsurers and car makers are also deploying models, while California limits parametersgamification to promote safe driving behavior. for product pricing. This hampers insurers’An example is Nissan’s Leaf model, which uses ability to create competitive products andthe company’s "Eco Mode" software to collect protect their IP. While regulators favor lowervariables such as power usage and speed to premiums for good driving, they do not haveprovide feedback to drivers on their driving, a clear stand on raising premiums for badusing a display located behind the steering wheel. driving, impacting carriers’ competitiveness.Meanwhile, other insurers are using vital rating • Privacy issues: An early significant hindrancestats from driving data gathered through apps to UBI adoption, especially in the U.S., isrunning on smartphones, connected to vehicles, consumer concern over the types of datato rate drivers for safe driving and use the score being collected, particularly related to GPSto offer premium discounts. location, braking patterns and speed. Issues related to privacy infringement, and howAs drivers become aware of the savings they can insurers will handle this data, are seen asrealize by limiting how much they drive and how potential roadblocks for UBI adoption. Insurersthey drive, they are likely to alter their behav- need to continually allay customer fear overior. The result: fewer crashes and reduced traffic how they will protect customer privacy. It willcongestion, fuel consumption and emissions. be a significant challenge for insurers to con- vince customers and privacy advocates andConnected-Car SavingsAnnual benefits per connected passenger vehicle, by source New $1,400 Point of interest, location-based services, Profit Pools $100 car sharing, app store for the road, etc. Auto OEMs $180 Decreased electronic vehicle architecture Auto OEMs complexity and cost $280 & Dealers Improved service, retention; lower service, warranty costs Car Insurance $380 Avoidance of crashes and associated societal cost Government $430 Lower fuel usage, emissions, congestionSource: Cisco IBSG, 2011Figure 8 cognizant reports 9
  10. 10. regulators that consumer information will be to their existing systems and incorporate into secure and used only as stated. their UBI product design, with the intent of• Operational issues: Insurers are often moving forward with a UBI offering. overwhelmed by the storing and analysis of the massive amounts of data generated by • Challenges with smartphone-based tele- telematics. Also, UBI projects are extremely matics: The telematics-based insurance eco- complex in nature, requiring extensive data system is as heterogeneous as the mobile management and analytics capabilities. ecosystem, and the combination increases overall complexity. A lack of standardization in Insurers also face challenges resulting from data and auto platforms makes it challenging the fragmented telematics ecosystem, in for insurers to integrate mobile devices into which many auto makers, insurance carriers, their IT infrastructure. Also, mobile devices telematics service providers and new play- are a potential distraction, as drivers use them ers are vying for a slice of the market with for calls and texting while driving, which is a software and connected navigation products. major cause of accidents. Also, insurers need Insurers may find it difficult to pass on the to authenticate whether the mobile device was costs of device acquisition, installation and indeed in the vehicle at the time of driving. operation to customers. Many factors are beyond the insurer’s con- Further, the plethora of telematics devices trol, including whether the driver is carrying available on the market make it difficult for his or her phone while driving, that the device insurers to determine which device best suits is not being carried by someone else, that their needs. With patented UBI technologies the smartphone is charged and that relevant and no publicly available repository of users’ insurance apps are running. As the device is driving data, insurers face an uphill challenge not tied to the vehicle, insurers will not be able in quickly starting a UBI program. Most have to offer stolen vehicle services. Smartphone begun with a pilot program to test and review devices are not as rugged, secure or reliable devices and data capture, assess the impact as embedded onboard devices, and they openUBI Ripple EffectImpact of vehicle connectivity on U.S. insurance value chain • PAYD: Usage-based insurance Usage & • MHYD: Driver-behavior-based insurance 10% - 30% Behavior Premiums • Vehicle health monitoring and maintenance • Driver vitals monitoring / distraction alerts • Safest-route guidance Crash • ADAS + V2V + V2I: passive and active correction 20% - 35% Prevention of Crashes • eCall/ACN reduces severity of injuries and saves lives • Virtual black box transmits vehicle crash data/video Fast & Correct • Driver vitals/health data transmitted to first responders 5% - 15% Response • Reduction of survey and investigation costs Savings • Fraud prevention and reduction (~80%) • Stolen vehicle tracking/location Claims & Cost 30% - 80% • In-network partners with pre-negotiated rates Containment Savings • Pay as you speed • Virtual violation detection and notification Connected Law • Automated payment 20% - 30% Enforcement Savings $515B Crash Costs $715B +$165B Insurance Premiums Addressable Cost Base +$35B Traffic Services / Law EnforcementSource: Cisco IBSG estimates, 2011Figure 9 cognizant reports 10
  11. 11. up greater opportunity for device tampering, use pricing models and managed services. As UBI lowering insurer trust in the data generated by products and accompanying value-added services these devices. emerge, the partner should also offer UBI admin- istration and business process optimization. InThe Road Ahead addition, the partner should have relationshipsThe insurance industry is undergoing a radi- with car makers to help insurers offer additionalcal makeover, shaped by rapid advancements value-added services for a connected technology and consumer behavior and pref-erences. Forward-looking insurers need to assess Service providers should also have strongtheir current business models in light of chang- alliances with telematics platform providers anding marketplace and consumer requirements. device manufacturers, as well as deep exper-Meeting customer needs and serving them well tise in integrating these devices with enterprisewill be key to continued growth. Telematics and systems. As telematics-based UBI is stillmobility have immense potential to help insur- evolving, insurers should choose a partner withers by improving the quality and frequency of strong project management experience and thecustomer interactions. ability to offer strategic consulting on develop- ing a roadmap for telematics-based products thatBuild Winning Strategies suits current as well as future requirements. (ForAs in any highly competitive market, gaining the more details, read our report, The Telematicsfirst-mover advantage in the telematics arena Advantage: Growth, Retention and Transforma-will be critical. Proactive insurers should create tional Improvement with Usage-Based Insurance.)systems that can manage data collected fromtelematics-based UBI programs, as well as employ Insurers will also need a service provider thatpowerful technologies such as analytics to glean can develop strategies for archiving raw datauseful insights from this data about customers feeds for future analytics, as well as addressingand their preferences. Easing customer concerns long-term data integration needs. Given theabout privacy issues will aid in improving market competitiveness of the market, partners shouldpenetration, and providing customers with visibil- also offer innovative solutions that can addressity into the data captured about them and how it the significant challenges insurers face whenis used will help build much-needed trust. entering this market.Identify the Right Partners Embracing New Business ModelsIdentifying the right partner is critical for insur- Increasingly, customers are demanding productsers planning to enter or strengthen their foothold and services tailored to their needs. Consumersin the telematics-based UBI market. With data looking to save money in a challenging economybeing central to the success of any UBI program, are finding telematics-based UBI attractive. Insur-insurers should choose a provider that can offer ers, too, are finding they can no longer affordend-to-end data solutions, as well as strong to rely on traditional business models, espe-expertise in aggregating, storing and analyzing cially when disruptive forces such as telematics,large volumes of data. mobility, the connected car and analytics are redefining the core of the market. Further,As the market evolves and consumer preferences advances in technology that make telematicschange, insurers also need solutions that are flex- devices more convenient, affordable and effectiveible and scalable. Service providers should exhibit will drive the growth of telematics in insurance.deep expertise in the insurance sector and thor-ough knowledge of the markets in which they Winning insurers will look to continually engageoperate. Insurers should also look for partners customers in innovative ways, offering high-that can deal with multiple telematics devices quality value-added services to meet theirand data platforms and provide flexible, pay-per- evolving needs. cognizant reports 11
  12. 12. Footnotes Stephen Brobeck and J. Robert Hunter, “Lower-Income Households and The Auto Insurance1 Marketplace: Challenges And Opportunities,” Consumer Federation of America, January 2012, “How UBI Will Radically Change Insurance Economics,” Ptolemus Consulting, Telematics Update, 2012, 0&cValue=1.3 “Embedded Telematics in the Automotive Industry,” IHS iSuppli, November 2011, http://gallery. Industry_sw_iS.pdf.4 Anna Buettner, “U.S. Continues to Lead OEM Telematics Market,” IHS iSuppli, January 2011, to-lead-oem-telematics-market.aspx.5 Cheryl Kaften, “By 2017, Most PEVs Will Get the Show on the Road with Advanced Telematics,” Tech- nology Marketing Corp, June 2012, 2017-most-pevs-will-get-show-the-road.htm.6 Anna Buettner, “U.S. Continues to Lead OEM Telematics Market,” IHS iSuppli, January 2011, to-lead-oem-telematics-market.aspx.7 “89 Million Insurance Telematics Subscribers Globally by 2017,” ABI Research, February 2012, “Europe to Lead Insurance Telematics Market, with More Than 44 Million Subscribers by 2017,” ABI Research, June 2012, Catherine Stagg-Macey, “Telematics-Based Insurance: Has Its Time Finally Arrived?” Celent, January 2012, Mike Hales, Joe Reifel, Gang Xu and Andrew Beebe, “Insurance Telematics: The Game Changer,” A.T. Kearney, March 2010, telematics-the-game-changer/13-658.htm.11 “Insurance Telematics,” Ptolemus Consulting, 2012, evupdatelz/lz.aspx?p1=05900062S2941&CC=&p=1&cID=0&cValue=1.12 “Usage-Based Insurance,” National Association of Insurance Commissioners, June 2012, “Insurance Telematics,” Ptolemus Consulting Group, May 2012, abstract.14 “Mileage-Based Premium Drives the Telematics-Enabled Usage-Based Insurance Market,” Frost & Sullivan, June 2011, gon11071=ATMI2.15 “Moody’s: Auto Insurers Offering Usage-Based Products Gain Advantage,” Insurance Telematics, December 2011, offering-usage-based-products-gain-advantage/13-970.htm. cognizant reports 12
  13. 13. 16 An initiative by the European Union that helps motorists receive immediate assistance when they are involved in a collision anywhere in the EU region.17 An emergency response system that automatically activates and transmits the vehicle’s coordinates to the nearest emergency response center to provide emergency services.18 Legislation introduced by the Brazilian government to fight high levels of vehicle crime.19 A law enacted by Brazil to fight vehicle theft by using GPRS modules that allow vehicles to be tracked and immobilized.20 General Packet Radio Services.21 Allows users to reduce their premiums by improving their driving using the feedback provided by the insurer.22 Allows users to pay insurance based on how much a vehicle is driven during the policy term. Users can pay for the miles they expect to drive either in a lump sum or installments, allowing insurers to offer rebates for unused miles and charge for any extra miles driven. Alternatively, users can pay the premiums based on time, such as monthly or bi-monthly vehicle usage.23 A world with devices that are seamlessly connected to each other, allowing consumers to enjoy services and experiences on-demand, anywhere and anytime; overview-and-vision/.24 “Connected Vehicle Insurance: The Business of Preventing Crashes,” Cisco, April 2011, “Twenty Percent Drop in Car Accidents Thanks to Telematics Insurance,” The Co-operative Banking Group, April 2012, 872357&pagename=Corp/Page/tplCorp&currart=1334211464216&currmth=4.References• “2012 Global Insurance Outlook,” Deloitte, 2012, Local%20Assets/Documents/FSI/US_FSI_Global%20Insurance%20Outlook%202012_011312.pdf.• “The Connected Car – Finally Coming True?” Arthur D. Little, 2012, tx_adlreports/ADL_AMG_2012_Connected_Car.pdf.• “Connected Car Market Speeding Ahead,” Connected World, June 2012, http://www.connected• “Driving Operational Excellence in Claims Management,” Deloitte, February 2011, com/assets/Dcom-UnitedStates/Local%20Assets/Documents/FSI/US_FSI_DrivingOperational ExcellenceInClaimsManagement_022311.pdf. cognizant reports 13
  14. 14. CreditsAuthor and AnalystAala Santhosh Reddy, Senior Research Associate, Cognizant Research CenterSubject Matter ExpertsKimberley J. Gunther, Telematics Practice Leader, Cognizant Insurance Business UnitJeff Wallace, Assistant Vice President and Cognizant Mobility Practice LeaderDesignHarleen Bhatia, Creative DirectorSuresh Sambandhan, DesignerThe author would like to acknowledge the research support provided by Saket Ganeriwal,Senior Research Associate, Cognizant Research Center.For more information on usage-based insurance, please contact us at CognizantCognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business processoutsourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquarteredin Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deepindustry and business process expertise, and a global, collaborative workforce that embodies the future of work.With over 50 delivery centers worldwide and approximately 145,200 employees as of June 30, 2012, Cognizant is amember of the NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among thetop performing and fastest growing companies in the world.Visit us online at for more information. World Headquarters European Headquarters India Operations Headquarters 500 Frank W. Burr Blvd. 1 Kingdom Street #5/535, Old Mahabalipuram Road Teaneck, NJ 07666 USA Paddington Central Okkiyam Pettai, Thoraipakkam Phone: +1 201 801 0233 London W2 6BD Chennai, 600 096 India Fax: +1 201 801 0243 Phone: +44 (0) 207 297 7600 Phone: +91 (0) 44 4209 6000 Toll Free: +1 888 937 3277 Fax: +44 (0) 207 121 0102 Fax: +91 (0) 44 4209 6060 Email: Email: Email:©­­ Copyright 2012, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein issubject to change without notice. All other trademarks mentioned herein are the property of their respective owners.