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How Auto Insurance Adapts to the Internet of Everything

The automotive industry is transforming rapidly as it embraces new paradigms -- such as active safety, on-board automation and car sharing services. The onset of the Internet of Everything (IoE) has also created new applications for sensor data that can be applied toward the development of new business models.

As an example, the Usage Based Insurance (UBI) subscriber base broke through the 10 million member barrier, mainly driven by the ongoing adoption of these offerings within the U.S. and Italy. While it's been a turning point for the market, many obstacles remain.

According to the latest market study by ABI Research, fundamental UBI impediments include privacy concerns, low awareness and perceived value, lack of scalability of on-board diagnostics (OBD) approaches and unclear future business models.

Market Development Challenges

UBI first-mover profitability gains -- based on the self-selection of low-risk drivers -- will ultimately not be sustainable. The auto insurance industry aims to address these issues through smartphone and embedded car OEM approaches, integration of UBI in a wider set of telematics and connected car services, turnkey solutions and customer-centric CRM approaches, and the use of contextual rating variables.

"While the auto insurance industry actively addresses issues, it is important to note that ADAS in the short term and driverless vehicles in the long term will dramatically reduce accident risk," says Dominique Bonte, vice president at ABI Research.

ABI analysts believe that this will inevitably result in UBI and auto insurance largely losing its relevance, which is apparently a reality that the involved parties are often reluctant to accept.

The new automotive smart mobility landscape offers multiple opportunities for UBI providers who are keen on leveraging their data analytics assets, risk assessment and auditing expertise:

  • Getting Involved in the Connected Car Big Data and Analytics explosion through a wide range of services from traffic, weather, parking spaces and prognostics to AI-enabled driver car algorithms, including quality and performance monitoring.
  • Extending Offers from Personal Insurance to product, fleet and corporate liability coverage.
  • Launching Cyber Security Services and Insurance, especially related to real-time monitoring of vehicles on the road.

According to the ABI assessment, with the known automotive safety threat now shifting from the physical to the digital environment, auto insurers will need to transform their commercial operations accordingly.

"In this respect, UBI should be seen as a stepping stone toward a more holistic risk assessment and insurance approach," concludes Bonte. "It will address new challenges in a smart mobility landscape consisting of shared driverless vehicles, multi-modal transportation, and an experience-based, usage- and data-centric IoE environment."

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