Where in the world are you most likely to find a connected car? Los Angeles? London? Rome?
Most people would think that Silicon Valley, home of Google self-driving cars and Tesla with its (controversial) autonomous driving features, is the most likely place. There is no denying that the USA dominates many areas of technology, but when it comes to how the Internet of Things is changing motor insurance, innovation can be found in less obvious corners of the world.
According to analysts Bain & Co, it is actually Italy that leads the market in deployment of motor telematics for connected car insurance applications globally. Italy has been branded a pioneer as one of the first countries to use telematics concretely – predominantly through black boxes and insurance, but also in other verticals such as healthcare. Ahead of the USA, the Italian market is motoring into growth phase while countries like France and Germany are forecast to retain a more cautious position, largely due to privacy concerns.
It may come as a surprise for some that Italy is the global telematics leader. Indeed, the Italian insurance Association, ANIA, reported an average 15% penetration in sales and renewals across the country in 2014 already, and in some regions, this was 25%. But for those in the know, it makes complete sense that Italy has chosen to invest so much in telematics deployment. This is because telematics, the long-distance transmission of computerised information, is already an essential part of modern insurance, particularly motor insurance, and Italy has simply been quick off the mark to embrace it.
Within five years, more than half of all new business processes and systems will incorporate some element of the internet of things (IoT) (source: Gartner). The IoT represents an amazing opportunity for insurers to rethink their entire customer process. As a result, the insurance product itself could be transformed beyond recognition to become the personalised and customer orientated service that the 21st insurance buyer expects.
Among other things, using telematics for insurance can:
- Manage risks more effectively;
- Innovate how insurance is sold and priced, with pay-as-you-go models and discounts for good driving behaviour; and
- Ensure an ongoing conversation between the customer and insurer, and provide a platform for selling additional services either from the insurer or third parties.
To give a practical example, telematics could allow customers to use a simulator that scores them on their ability to react to situations. This results in a specific associated pricing for that particular customer. As you can imagine, this does not always go down too well with drivers that overestimate their positive reaction and behavioural skills, but overall it is a far more efficient and accurate way to price insurance.
In the UK, telematics-based insurance does lag behind Italy, but it is becoming more prevalent for younger drivers (aged 18-25). Insurers are becoming better at pricing, with more claims experience and better technology, while more and new providers are coming into the market. A recent Consumer Intelligence paper reported that telematics brands provide the cheapest quotes for under 25 year olds over 50% of the time.
Connected cars will be increasingly common in Europe from 2018 when the eCall service becomes mandatory in all new cars sold in the EU. This initiative requires cars to be fitted with GPS technology that can automatically contact the emergency services in the event of a crash. This could boost the uptake of insurance telematics across all age groups, providing insurers can access the collated data.
It is fair to expect that within three to five years most new cars in the UK will be fully connected insurance propositions. A logical result would be a significant expansion in telematics based insurance in the UK, Continental Europe and beyond. It will be interesting to see how long Italy can hold on to its connected car insurance lead!
