Telematics reaching a “tipping point”: study

Three-quarters of North American insurers say they believe usage-based insurance (UBI) will fundamentally alter the auto insurance industry between now and 2020, according to results from a recent survey.

Strategy Meets Action (SMA), an insurance strategic advisory firm, released its new research report, Usage-Based Insurance/Telematics: a Catalyst for Change on Thursday, which included results from a survey of about 200 industry participants.

“Insurers have been experimenting with telematics for 15 years,” Mark Breading , co-author of the study and SMA Partner noted in a statement. “Now, telematics is rapidly gaining momentum, and every auto insurer should be thinking about their plans for telematics and usage-based insurance.”

According to the survey, 70% of North American property and casualty insurers are engaged in some stage of usage-based insurance (often known as pay-how-you-drive insurance), whether they are operating active programs, conducting pilots, or building strategies.

Almost 20 auto insurers are now running UBI programs in US and Canadian markets, and eight of the top 10 U.S. companies now have UBI programs or pilots underway, SMA noted.

Most companies’ programs, though, are still in the infant states, the report says. UBI penetration in the U.S. is still low, with fewer than one in 100 insured vehicles currently connected to a telematics device communicating with an insurance company, the report suggests.

Key challenges for insurers looking to build successful UBI programs remain, SMA noted, such as managing technology costs, understanding loss experience, creating consumer demand, and overcoming patent issues. Increasing consumer awareness, and subsequent adoption, is also critical, the report notes.

“Telematics is going to have a profound effect on the auto insurance business,” co-author Richard Welch of REW Consulting added. “Even if consumer adoption is in the low end of the consensus range, usage-based insurance will grow rapidly, and as it grows, the traditional market will shrink, making it very difficult for companies not playing in the usage-based segment to maintain market share.”

SMA’s full report is available for purchase on its website.