The Future of Car Insurance - Digital, Predictive and Usage Based

Usage-based insurance has the potential to radically change the insurance industry

Car insurance now sold by general insurance companies in India is one-size-fits-all product. It does not differentiate between driving patterns that range from high risk to low risk. The time has come for insurance companies to hop onto telematics-driven, usage-based insurance.

You would have heard of investigators searching for the black box after every aircraft crash. The black box records all the technical and voice data while the aircraft is in flight. That piece of instrument is key to demystifying every crash or accident involving an aircraft.

In usage-based insurance, a similar mechanism is installed in a car to record braking history, acceleration pattern, time of the day a vehicle is driven, the road taken etc. The big difference, when compared with the black box in an aircraft, is that the car driving history is not just recorded but through use of telematics is relayed live to the insurance company.

In the near future, a car bought in India will come with a black box, on-board sensors, a dongle or a mobile phone app, and internet connectivity that would make it a connected car -- the car connected to other devices at home, office, other cars, and your insurance company.

What is Usage-based Insurance?

Usage-based car insurance made a debut about a decade ago in Europe and North America. Driving information is accessed online or on apps, which allows customers to monitor their driving patterns and improve their driving habits to earn discounts on insurance premium. Insurance companies offer mileage-based, and driving habits-related discounts.

Usage-based insurance is alternatively called Pay As You Drive (PAYD) and Pay How You Drive (PHYD). All the data that telematics will transmit to insurance companies will power greater data analytics and offer driver’s insurance options such as Manage How You Drive (MHYD). The number of drivers in the US and Europe opting for usage-based insurance is estimated to touch 100 million by 2020.

Car owners are likely to opt for usage-based insurance as it not only offers lower premium for low-risk driving, but it will also encourage safe driving and prevent high number of deaths due to road accidents.

Why usage-based insurance is poised to take off soon:

• It is not just about devices in-built into the cars any more. Carmakers need not worry about connectivity and have found an answer in mobile phones. Drivers can pair their smartphones with their cars, and the cars can use the internet connections of the phones to transmit driving data.
• The experience in the US and Europe shows the consumer is becoming more comfortable sharing driving data. People today willingly share their locations, their fitness information, their travel options, etc. More consumers are now willing to share their personal lives, which augurs well for the acceptance of sharing driving information.
• The number of vendors developing telematics platform is increasing. It includes devices, data transmission, security, and data analytics. There are vendors who have already invested or are investing in technologies to get and transmit driving data.
• Insurance companies will have to get skilled at collecting and analysing driving data, which will be part of the large ecosystem of big data. How you analyse the data will determine how best an insurance company is able to predict loss and to recognise in new ways the potential value of consumers.
• Telematics data is akin to the credit bureaus engaged in credit scoring. Telematics will offer insurance companies a graded view of each consumer which has never been conceivable so far. The technology exists and consumers are accepting it, creating a ground for a radical transformation in car insurance products and pricing.
• Telematics can also be deployed in other insurance streams as well. These include health insurance and property insurance. Insurers can get access to information on lifestyle, daily fitness regimes, etc. on every consumer. Similarly, insurers can alert insured property owners of potential risks.

Telematics is a phenomenon that can change insurance from being a protection from risks to prevention of risks. Insurance companies can make driving safer or less risky, encourage consumers to lead a healthy lifestyle, and avert damage to properties from disasters.

Related Article:

The Future of Car Insurance: Tracking Devices and Telematics
All You Need to Know About Telematics