Us insurance telematics market by Sutherland Global Services

US Insurance Telematics Market December 2013

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Definition

What is Telematics?

What is Usage Based Insurance?

•

Telematics is a communication technology for the automobile industry. It works on wireless connectivity established between passenger vehicles and telematics infrastructure – whether it is machine to machine, machine to human, or direct to cloud

•

In this technology, a telematics device plugged into the on-board diagnostics (OBD) port of a vehicle, or originally installed by the manufacturer, collects particular data and sends it via wireless communication to the infrastructure to derive meaningful and predictive insights about the driver’s behavior and contextual environment

•

Usage based insurance (UBI) harnesses the telematics technology to capture detailed driving and contextual environmental data to assess actual behavioral risk and using this data improve motor insurance pricing

•

Also known as Pay As You Drive (PAYD), Pay How You Drive (PHYD) and mile-based auto insurance, it is a type of automobile insurance whereby costs of motor insurance are dependent upon numerous details about driving and environment data

•

In nutshell, with UBI the insurer uses dynamic parameters such as mileage, time of day, location, driver behavior and context, when determining the policy premium

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PAYD and PHYD motor insurance policies, often known as telematics or ‘black box’ insurance, take into account how the vehicle is used when setting the premium – PAYD is a mileage-based system where a device is installed in a vehicle to validate mileage and through this, customers only pay for the kilometers they drive – PHYD takes into consideration not only the mileage but also the driving style and behavior

•

Both these systems are passive in nature and collect only data. The latest technology Manage How You Drive (MHYD) has options to interact with consumers also, enabling the consumers to provide feedback through invehicle interface and to try and improve their driving habits

PAYD /PHYD/MHYD

Source: SGS Research and Analysis

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Evolution of UBI How it evolved • Progressive came up with the first Usage-Based Insurance (UBI) product

• ‘PAYD – Pay As You Drive’ policies grew rapidly, particularly among the drivers whose vehicle usage was often very different from that of the standard drivers • Mass adoption was hampered by implementation and privacy issues

1998

2002

• Rapid development of UBI products started • Telematics products were largely built around the ‘PAYD – Pay As You Drive’ base, where premiums depend on the distance travelled

2006

2008

• Telematics products moved form the PAYD to PHYD (Pay How You Drive) policy

• Technology advancement created the second wave of interest in telematics insurance • Many of the early implementation issues were sorted out through this technology

2009

• Progressive launched its latest offering of UBI product – ‘Snapshot’ and scaled it to about 0.9 Mn users

2010

• Smartphone-based PHYD policies were established (referred to as telematics 2.0). These minimise the impact on the policyholder by utilizing the smartphone technology

2011

• State Farm launched its UBI program ‘Drive Safe & Save’

• To create awareness, dedicated insurance telematics conferences started taking place all over the world including the US • State Farm collaborated with Ford to use its connected car platform “ SYNC” for theUBI program

2012

• The insurance market got flooded with a significant number of insurers with UBI products • AA Insurance released ‘Drivesafe’ • Co-Op introduced ‘SmartBox”

Source: Secondary Research, SGS Research and Analysis

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Whether one knows or not, one has been privy to Telematics for a long time now â&#x20AC;Ś Telematics in Different Forms

Source: Secondary Research, SGS Research and Analysis

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How Telematics works Modus Operandi

Car with a Telematic Device The device captures and sends the driving behavior information to the telematic infrastructure

Infrastructure Data on driving behavior is analyzed and sent to the insurance company’s IT system

Insurance Company

“Insurer also provides feedback on driving”

Invoice The data can be used to influence or calculate the customer’s premium Source: SGS Research and Analysis

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Typical parameters used by insurance companies to assess driver behavior Driver Behavior assessment

Distance

Rapid Lane Changing

Night / Day

Urban / Non-urban

Hard Cornering / Sharp Turns

Speed

Breaking

Collision

Airbag Deployment

Route Choice

Source: SGS Research and Analysis

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Telematics market is constantly on the rise Market Size USA OEM Telematics Sales and Penetration Trend 16

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

14 (Million units)

UBI Insured Vehicles in the US (Mn Units)

12 10 8 6 4 2

OEM Telemetic Sales

New Vehicle Penetration

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

3.5 2.5

1.0

2012

2013

2014

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Over the years, telematics services have grown from just safety applications to navigation, infotainment, remote diagnostics and, most recently, UBI services

•

In the US, ~34% of new vehicles are currently sold with a telematics solution, which is expected to grow to 80% by 2018

•

In the US, UBI is on its way to becoming a standard offering, with more and more insurers offering it and more consumers willing to let insurers monitor their driving habits for potential insurance savings

•

In the US, the number of vehicles insured under UBI policies was just around 1 Mn in 2012, which grew to ~2.5 Mn in 2013, and is expected to reach around 5 Mn by the end of 2014

•

Today, most consumers have access to telematics in their vehicles through OEM-installed systems, including GM’s OnStar and Ford’s Sync. But companies are increasingly making telematics products cheaper and easily available for mass consumers with smartphone applications, and cloud-based analytics and portals

Source: Secondary Research, SGS Research and Analysis

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Drivers for market growth

Technology Has Evolved

Highly Competitive Auto Insurance market

Driver Profile Has Changed

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Growth of the telematics UBI program is propelled by technology advances, which continue to substantially improve the cost, convenience, and effectiveness of using telematics devices

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UBI programs have typically relied upon proprietary devices installed in each vehicle, an investment only large carriers could afford. But new companies like Driveway Software are making an entry into UBI and setting the stage for small- and mid-sized insurers to compete with innovative UBI offerings with mobile device applications

•

Increased affordability via technological evolution means increased market penetration and growth

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US auto industry has been very price-sensitive and highly competitive

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Insures like Progressive, Allstate and State Farm have very aggressive plans and aim to launch countrywide offering of their telematics programs in the next 2-3 years

•

In such a competitive market, through UBI programs, insurers are able to differentiate products, gain competitive advantage, and attract low-risk policyholders . UBI helps auto insurers better their premium pricing mechanism while improving the overall risk management of their collective policies

•

Driver profile has changed in the recent times; there is an increase in the number of younger drivers who are more interested in UBI on economic grounds

•

Price-conscious drivers who have traditionally been safe drivers find UBI more affordable as they are not treated at par with high-risk drivers and get discounts for safe driving

•

Consumer awareness with regard to potential savings in premium, which can be a result of safe driving, has also increased

•

This customer segment demands more user-friendly and customized policies, which is made possible via UBI

Source: Secondary Research, SGS Research and Analysis

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Key market participants and case examples Insurers

UBI Program

Details • Progressive pioneered the US UBI market with its first product launch in 1998

Progressive

Snapshot

• Today, Progressive is the most aggressive insurer in the US telematics market, with its UBI product Snapshot available in 39 states • Progressive currently has around 1.4 Mn customers for its flagship product, Snapshot. The company is litigious from a patent perspective in order to maintain its first-mover advantage in coming years • Originally launched in Illinois in December 2010, DriveWise from Allstate is available is 22 states and has expansion plan to see the program available in the majority of the country by the year end

Allstate

DriveWise

• The device is not compatible with all vehicles. Hybrids, diesels, and various makes and models are not mechanically compatible with the device. The list of incompatible vehicles is regularly updated – these vehicles cannot be enrolled in DriveWise • Esurance, acquired by Allstate in 2011, is an innovative online discount auto insurance provider

Esurance

State Farm

DriveSense

Drive Safe and Save

• DriveSense program by Esurance is currently available in 10 states and will expand in more states • Esurance’s DriveSense is powered by Modus telematics, which provides the full service UBI solution including logistics, integration, application development, data warehousing, and support services • State Farm launched its “Drive Safe and Save” program in 2011, with General Motors’s OnStar telematics and In-Drive device powered by Verizon Telematics. Later in 2012, it collaborated with Ford to use its connected car platform “ SYNC” for the UBI program. The program is extensively expanding and is now available in nearly all states • State Farm’s UBI program gives options to its customers to use any compatible device and focuses on collecting data through various devices – Customers can use their vehicle's OnStar, In-Drive, or SYNC communication service and let State Farm collect basic information about their driving and avail safe driver discount

Source: Company Websites, Secondary Research, SGS Research and Analysis

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Key market participants and case examples Stand-alone Telematics Manufacturers

Source: Company Websites, Secondary Research, SGS Research and Analysis

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