A closer look at the rise and future of the insurance telematics market
Telematics may well be the most disruptive technological innovation that has appeared on the market – and certainly on the motor insurance market – since the dawn of the new century.
In the last ten years, telematics has revolutionized the motor vehicle insurance market by significantly increasing driver and road safety and by placing the customer at the centre of a strategy delivering savings and invaluable benefits. Indeed, over the last five years, the telematics insurance market has begun its migration from a niche market towards a relatively mainstream service.
Telematics has something to offer everyone. It allows young drivers to take advantage of cheaper policies by installing a telematics black box. In fact, it has been demonstrated that young drivers are less likely to be involved in accidents if they are using a telematics-based insurance policy. Digital natives and early technology adopters are now on the road and eager to indulge in telematics services providing navigation assistance, safety features and alerts, traffic, parking and weather information and much, much more. Indeed, even people who use their car only seldom or only for short journeys can benefit from the pay-per-use model developed by insurance telematics.
In short, the insurance telematics market is rapidly on the rise and the market reservoir is vast. According to Berg Insight, the EU25 had an estimated 278 million vehicles on the roads in 2011, while the United States had 269 million (2012). The same report indicates that motor insurance premiums reached a total of over €124 billion in the EU25 (2013) and the North American market is estimated at ca. €172 billion.
While, Europe and North America lead the global adoption of insurance telematics programmes, the market continues to expand worldwide. At present, the largest national markets include the United States, Italy and the United Kingdom, with Italy currently leading the market with a 4% penetration rate. In the United States, as of December 2013, the insurance telematics market was estimated at US$4 billion with 4.5 million policyholders.
By the end of 2014, there were ca. 4.8 million active insurance telematics policies on the European market with an annual growth rate of 42.4%. In fact, the total number of insurance telematics policies in Europe is expected to top 28 million by 2019. In North America, the total number of insurance telematics policies is expected to reach 32.5 million by 2019, at an annual growth rate of over 50%.
Moreover, McKinsey & Company estimates that the value of the global market for connectivity devices and services will rise from the current €30 billion to €170 billion by 2020.
The growth of the insurance telematics market is driven by a wide range of factors. First and foremost, the wide range of products and services that can be custom-tailored to consumer needs, driven by usage-based insurance opportunities, and the growing number of market segments addressed by telematics products and services.
The second great market influence comes from smartphone-based solutions and the steady journey towards a world of connected cars; indeed towards the greater global Internet of Things. Less than a year ago, McKinsey & Company reported that 13% of buyers was no longer even interested in purchasing a new vehicle without Internet access and over 25% already prioritized connectivity over features such as engine power and fuel efficiency.
Meantime, insurance companies and vehicle manufacturers, continue to promote initiatives aiming to extend the allure of insurance telematics to the mass-market, while government-mandated use of telematics in vehicles is expected to increase over the coming years.
Octo Telematics, the first company to provide custom-tailored telematics solutions for the insurance and automotive market, including a pioneering satellite-based vehicle anti-theft system, was founded on April 16, 2002. As the only global company in operation since the beginning of the telematics revolution, Octo Telematics is using its vast telematics database, research knowledge and market experience to anticipate upcoming trends on the insurance telematics market. Stay connected.
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