UBI Might Be Mass Market Ready But What About Auto Insurers’ IT?
Originally posted on SimpleSolve Inc by Antony Xavier, CEO. SimpleSolve is one of the top 20 insurance technology innovators in the US — CEOReview
The future of auto insurance will be telematics-based. The future is right now knocking at carriers’ doors, going by the fact that the biggest market for usage-based insurance is North America with over 7.1 million active policies. Progressive, Allstate, and Liberty Mutual have the largest share of this UBI pie. There are more than a thousand auto insurance companies operating in America but only 19 insurers are offering UBI. However, over 63% of Americans are open to switching to usage-based insurance. As this pie grows bigger, everyone will want their share. The entry of 7.1 million active policies automobile manufacturers like Tesla and Ford into UBI has given a wake-up call. While the race to unleash the potential of UBI as a mass-market product is on, are all carriers ready for the IT effort needed?
The challenge faced by new entrants into the UBI Market
While telematics has been around for the last decade, the buzz in recent years has grown louder because of the convergence of connected vehicles, next-gen technology and the data revolution. In the early years, insurance providers had to make available hardware systems that would plug into the vehicle’s OBD-II port. The cost of producing and distributing these devices to create connected cars was not considered worth the effort. Smartphone technology and GPS has removed this barrier of special hardware and made usage-based insurance an option that is attractive to both carriers and consumers.
The challenge for a wider UBI adoption has moved from hardware to whether insurance technology platforms have the capability to tap into the strong ecosystem that has been built around connected car services. This ecosystem includes automotive IoT, insurance providers, big data analytic companies, and cloud service providers . Predictive analytics and machine learning technologies have to be a big component of the technology infrastructure. This is because real-time data streaming means gigabytes and terabytes of information that without ML would be an impossible task to extract useful and actionable information. Insurers cannot afford to underestimate the importance and challenges of data capture and integration into their systems.
Most insurance carriers are well established and have complex technological capabilities built over decades. There is no getting away from the fact that going for a complete system overhaul would take years and require a substantial investment. This is the strongest reason why some auto insurers have decided to park the adoption of a usage-based insurance model for now. But rather than a complete overhaul, if insurance carriers were to look at changing the right pieces of their technology frameworks necessary for telematics implementation, it might help them to get to market quicker.
In the headlights: Insurance technology infrastructure
Usage-based insurance, as I have already described it, is not a stand-alone approach. It requires an upfront outlay on product innovations, UBI technology partnerships with telematics providers, and data management. There will also have to be an up-gradation on insurance core platforms, like policy management, claims, etc. Data storage and privacy concerns will also need to be addressed. UBI is predicted to grow 5x in the next 5 years , so this upfront investment is bound to pay off in the long run.
63% of drivers in North America are open to switching their current auto insurance policy to one with a telematics-based premium.- Report published by Cambridge Mobile Telematics and IoT Insurance Observatory
3 Approaches to insurance platform modernization
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Originally published at https://www.simplesolve.com on April 12, 2022.
