Telematics a bridge to ‘an inevitable future for the insurance industry’ report predicts

The use of telematics technology in auto coverage, and the usage-based insurance (UBI) model, will “act as bridges toward an inevitable future” for the industry, in which “non-traditional” companies could “enter and disrupt” the risk management business, Aite Group LLC suggested in a new report.

Aite Group announced Thursday the release of Telematics and Usage-Based Insurance: Notable Players in an Evolving Market. That report includes information on six “leading” vendors providing usage-based insurance.

Those vendors include Waterloo, Ontario-based Intelligent Mechatronic Systems Inc., which  provides the technology used by Guelph, Ont.-based The Co-operators Group Ltd. for its en-route Auto UBI offering in Ontario.

“There are over 200 vendors in the UBI or telematics space that insurers could look to for assistance or guidance in using this technology to meet the demands of today’s insurance market,” Aite Group said in the report, adding not all vendors “provide the same capabilities or even those that carriers might want or need.”

Aite predicts that UBI, as a business model, and telematics, as a “technology enabler,” will “act as bridges toward an inevitable future for the insurance industry.” That future, Aite Group suggested, includes active risk mitigation (ARM) for businesses and personal risk management (PRM) for individuals.

ARM and PRM “will be more fully developed in upcoming Aite Group reports,” the company noted.

“ARM will be a set of business tools that work together to provide analysis, predictive observations and warnings, and dynamic action plans to corporate risk managers to prevent or reduce the occurrence, frequency, and severity of insurance claims,” Aite Group predicted. “The same techniques could be used for other events that have a potential negative impact on operations and results, even if they don’t trigger insurance coverages.”

PRM will use “similar sensor and connected smart device technology to reduce risk and negative outcomes for individual consumers or their families,” Aite Group explained, adding both ARM and PRM “make use of situational awareness garnered from a combination of available knowledge of individuals or businesses, their situations, and the environments in which they operate or live.”

UBI, Aite Group contended, “is a bridge to the new business models for insurance because it connects modern evidence gathering to risk scoring. That function alone will mean that evidence collected much closer to real time will in time supersede, but not necessarily displace, statistical functions on large bodies of less specific (to the policyholder) data that rule today.”

Both the “old and new models” of auto insurance underwriting “will coexist for some time, but UBI is contributing to the acceptance of alternate means of operating an insurance company,” Aite Group added.

“Those who would dwell on the older, historical-data-based models need to incorporate a basic reality into their thinking,” Aite warned. “Even if they used new technology simply to optimize their models, outside, nontraditional players would inevitably enter and disrupt the risk mitigation and risk management business as they know it. Names such as Google, Amazon, and Walmart pop up whenever this topic is breached.”

While companies such as those “are seen most often as threats to various distribution channels, as they well might be, they likely represent a more fundamental change in the foundational mechanisms of insurance,” Aite Group stated in the report. “Each of these potential disruptors have created, disrupted, exploited, or otherwise dominated an area of modern commerce. And they have done this via the masterful use of information technology.”

In addition to IMS, the other five “leading vendors” cited by Aite Group were: Danlaw Inc. of Novi, Mich.; Modus Group LLC of Huntington Beach, Calif.; Octo Telematics SpA, based in London and Rome; Jersey City, N.J.-based Verisk Analytics Inc.; and Reed Elsevier plc’s LexisNexis Risk Solutions unit.

The report also included information on a seventh telematics provider, Laval, Quebec-based Baseline Telematics, whose technology is used by Industrial Alliance Home and Auto Insurance Inc. in its Mobiliz offering in Quebec.