Will connected cars dominate the auto insurance industry? PTOLEMUS’ research “Connected Auto Insurance Global Study 2021’’ finds out
Elon Musk just tweeted Tesla’s intent to launch a UBI(usage based insurance) product in Texas in October, citing why, with the stream of “actual driving data”, Tesla was best placed to price insurance premiums for its customers. For once, however, this announcement is not so “avant-garde” and in fact represents the tip of the iceberg for the insurance industry… COVID-19 has triggered the demand for mileage-based insurance…
Based on 9 months of research, this report reveals that the collapse in car usage provided by pandemic-related confinements has led policyholders to demand flexible policies priced on their actual mileage. Many insurers, especially in the US, issued rebates, as policyholders demanded refunds, and, in response to the outcry, established UBI programmes too.
Furthermore, a large number of carriers told us how demand for Mileage-Based Insurance (MBI) has increased significantly, with reports of 40-50% of all new policies being written to connected auto insurance programmes no longer being uncommon. … and OEMs( original equipment manufacture) are responding
With the now dominant share of connected cars being sold in developed countries, OEMs are responding to the demand for km based policies. Aided by the COVID-19 pandemic but also OEMs’ own initiatives, connected car insurance is increasingly substituting traditional car insurance.
Since 2017, the growth of connected car insurance programmes has been outpacing insurance based on aftermarket devices.
PTOLEMUS’ research identified that at least 13 global OEMs have launched telematics insurance programmes in the last two years, all of which use the car’s built-in connectivity without the need for additional aftermarket hardware.
At least 17 OEMs are selling connected car services with dynamically-priced insurance already available from Ford, GM, Kia, Hyundai, Mercedes-Benz, Stellantis, Tesla, Toyota and Volkswagen. Many car manufacturers have also forged insurance partnerships (i.e. Ford with Arity, GM with American Family, Ford with Octo Telematics, PSA with AXA, Daimler with SwissRE).
Furthermore, in a clear statement of intent, 50% of all OEM in-house UBI programmes now use connected car data only, removing insurers or TSPs from the equation entirely.
What will be the impact?
PTOLEMUS has found that aftermarket devices will continue to hold a significant global marketshare for the next 5 years, but PTOLEMUS expects the share of black boxes, cigarette lighter adaptor, dash cameras and OBD dongles global to decline by 2030.
That is not to say that the future will be OEM data only. Indeed, PTOLEMUS also found that the growth in smartphone-based programmes will continue for Pay How You Drive programmes.
This can be attributed to the ease of app distribution and relative low cost. Critically however, the biggest strength of smartphone insurance comes from its ability to connect with the consumer in a way that no other aftermarket device can offer.
Is it too late for insurers adopt UBI?
Not necessarily!
The advent of the COVID pandemic has inadvertently resulted in a public referendum on traditional insurance products. Due to this exceptional event, the benefits of UBI have finally become evident to policyholders.
The reasons for UBI adoption are very much established too, with five key areas where the technology can provide benefits, including: customer acquisition, onboarding, customer engagement, policy management and, claims management.
Also, by using connected insurance within claims management, insurers can reap significant improvements in claims processing, reducing lead times by up to 75%. Meaning a lead time of 20-30 days can be reduced to little more than a week. But insurers must move fast to address the growing vacuum in the market as, automakers and digital brokers are proving that they will be able to disrupt the market. A market that will be multiplied tenfold
Today, the market for connected auto insurance represents 26 million active policies across all types of distribution models and technologies, generating €15 billion in premiums. Nearly 50% of global active programmes are concentrated in the USA, the UK and Italy.
However, in last two years, 16 smaller markets have been positing double-digit growth too. We expect that the increasing ease and lowering costs of data collection will allow UBI-based policies to grow to 248 million across 18 regions.
As a result, global UBI premiums are expected to surpass €150 billion by 2030, 10 times more than last year!