The number of global insurance telematics users will grow at a CAGR of 90% from 1.85 million in 2010 to 89 million in 2017 according to ABI Research.  Insurance telematics or usage based insurance (UBI) is not new as Progressive was trialing solutions back in 2002 but there is a renewed interest in this market which is migrating from pay as you drive (PAYD) to pay how you drive (PHYD) based on continuous driver behavior monitoring and analysis.  I have seen these commercials but never thought much about it.

ABI states that UBI allows insurance vendors to establish a continuous communication and feedback channel to build brand loyalty in an increasingly competitive auto insurance market. In the same way, value-added service packages including emergency services, roadside assistance, stolen vehicle tracking, teen driver monitoring, and vehicle diagnostics are often offered.

While the de-averaged pricing model and fairness principle of UBI to treat customers as individuals and have them pay for the risks they are actually taking instead of premiums depending on inaccurate proxies such as age and gender is gaining acceptance, many barriers hindering mass market uptake are still in place: self-selection of low risk drivers, privacy, lack of understanding of complex offers, lack of historical perspective validated by statistical data, absence of standards, installation of telematics hardware, and IP litigation.    

While currently the default UBI hardware solution consists of a dedicated device plugged into the vehicle’s diagnostics OBD port, future UBI hardware solutions will increasingly be based on either factory-installed technology (as in-car connectivity penetration rates increase) or – for the aftermarket – converged devices such as smartphones wirelessly connecting to the OBD bus via Bluetooth adapters.

Telematics in general are a growing market and this is another reason for the upward trend.