How Telematics is Steering the Future of Insurance
In a modern world where technology helps us navigate through daily life, personalised insurance can be as adaptive as the global positioning system (GPS) that helps us get to our destination with precision and safety. Telematics is like a digital compass that is revolutionising the insurance landscape today.
This pioneering technology harnesses data from connected devices, such as smartphones or on-site sensors, empowering insurance providers to carry out precise risk assessment. By analysing real-time data on driving behaviour, health habits, or property conditions, insurers can offer personalised insurance policies tailored to individual risk profiles, leading to fairer premiums and greater customer satisfaction.
Kannan Amaresh is Senior Vice President & Global Head of Insurance at Infosys where he has been helping financial institutions to ‘Navigate their Next’ for over two decades.
He has been responsible for global insurance since 2018, and – besides P&L responsibilities – he oversees client relationships and new client acquisitions in the insurance vertical across all key markets.
Kannan is curious about business model disruption through technology, and this fuels his approach to helping clients stay ahead of the curve. At Infosys, he applies a unique lens of ‘Speed, Accuracy, Trust’ (SAT) to solve customer challenges. With his business acumen and financial domain expertise, Kannan helps customers further business outcomes by using best-of-breed technologies.
He sat down with InsurTech Digital to discuss how telematics is shaping the future of insurance.
What role does telematics hold in insurance?
At its core, telematics is a blend of telecommunications and informatics. It enables the collection and bi-directional transmission of data from various remote sources, primarily through wireless or cellular communication channels over the cloud. When telematics is applied to insurance, it results in a more dynamic approach to risk assessment as against the conventional generalisation of risk factors.
Usage-based insurance (UBI) leverages telematics to apply usage-based rates to insurance policy premiums. UBI upends the traditional insurance model from ‘one-size-fits-all’ to tailored insurance policies adapted to each individual. This marked shift in the approach to risk assessment allows insurers to analyse data insights and customise policies for lower-risk customers. For customers, this translates to more control over their insurance-related costs, transitioning from the static annual renewal cycles to dynamic continuous evaluation cycles.
Telematics in insurance has reached a high watermark with UBI, with the market expected to grow by nearly 30% before the turn of the decade. Insurance providers can now craft newer product offerings based on the emerging changes in travel, health, life, personal property, lifestyle, shared services such as car-sharing and home-sharing, as well as micro-coverage. UBI also helps with mitigating risk, detecting and preventing fraud, providing real-time customer feedback, reconstructing accidents when needed, and offering data-driven insights.
Data from new technologies can be factored into UBI policies for an additional layer of information. These may include advanced driver assistance systems (ADAS) in vehicles that enhance driver safety, artificial intelligence (AI) cameras that detect distracted driving, and sensors that record changes within vehicles. Based on reliable data, responsible drivers can be rewarded with points that can be offset against future policy rates, and bring down the premium rate and claim potential.
How can telematics impact healthcare, and therefore insurance?
Telematics makes its mark in healthcare through enhanced data insights, greater personalization, and effective risk management. It introduces innovative use cases such as health profiling, predictive health analytics, and early disease detection. Insurers can offer policyholders who are leading healthier lifestyles better coverage at reduced costs. Fitness trackers and other connected devices help with data collection for health risk stratification. With health insurance varying widely from person to person, these insights assist in designing suitable wellness plans and arriving at optimal premium adjustments.
Telematics devices inside smart homes can track security and provide protection. By helping to detect the potential for accidents, including fire, house-break attempts, water leakage, severe temperature fluctuations, and other mishaps, telematics can assess catastrophe risks for informed insurance decisions.
What is the future of telematics in insurance?
As telematics advances, it converges with cutting-edge technologies and newer use cases. The integration of the Internet of Things (IoT) enhances the benefits from telematics, providing insurers with rich data. In the case of motor vehicles, IoT sensors gather accurate data on vehicle performance and speed, fuel consumption, engine health, brake wear, as well as responsible driving. IoT sensors at home can monitor environmental conditions, status of insured properties, and potentially hazardous changes. Alerts immediately auto-triggered to homeowners and insurers can prevent costly damage and insurance claims. With policyholders using wearable IoT devices for health and wellness, insurers can provide them with guidance and support for preventive healthcare, reducing the scale and frequency of potential claims.
Further innovation and developments will see insurers using technologies such as next-generation telematics protocol (NGTP) and generative AI (GenAI) with integrated data and services to meet market demands at speed. Being open source, these offer greater scope to be used across platforms, aiding enhanced operational risk management, swifter claims processing, and greater customer engagement.
What barriers face the technological development?
The success of telematics adoption in insurance is making itself evident through greater premium adaptability and transparency for policyholders as well as increased safety and reduced risk. Insurers benefit from data-driven insights that enable efficient fraud detection, risk-mitigation, fewer claims, and an engaged customer base. However, with the enormous data being collected, telematics adoption faces challenges from data privacy and security issues, with the potential for misuse. These challenges call for a balance between tailor-made insurance benefits and safeguarding sensitive data.
Data sharing and monitoring raises concerns among customers who are wary of sharing personal information about their health, homes, or lifestyle. Some perceive telematics as an invasion of privacy, where the data collected could be analyzed, indiscriminately shared, and used against them in other non-insurance settings. Particularly in the property and casualty (P&C) insurance sector, there is significant reluctance around telematics from intrusive surveillance concerns, resulting in limited adoption.
Sifting through the data noise to filter out irrelevant data using machine learning (ML) models and putting data standardisation and regulations in place for better data governance can help normalise the process. Telematics, after all, depends on actionable insights and not data hoarding. Reducing the frequency of data touchpoints while focusing on their quality, type, and usefulness can further prove beneficial.
Besides data privacy, another barrier to telematics adoption comes from the technical complexity of the systems and hardware management. Different types of telematics hardware, software, protocols, and onboard diagnostics (OBDs) have very different capabilities, compatibilities, and limitations. This leads to potentially inaccurate and inconsistent data quality and analysis.
Strategizing and harmonising regulatory frameworks around interoperability, ownership, and data sharing might help address these concerns to a large extent. These could also include guidelines on the quality, type, and frequency of data collection, to zero in on the appropriate tracking device to be used, bringing down the overall infrastructural and maintenance costs.
So… what are the take aways?
Despite the challenges, telematics is revolutionising insurance by harnessing the power of IoT data. Europe has a high penetration of telematics insurance products, while the Asia Pacific and the United States are still in the early stages of UBI adoption. Italy leads the European adoption, with the United Kingdom following close behind, even at a conservative adoption rate of 15-18%.
As the industry shifts gears towards personalised insurance solutions through UBI, IoT and other new technologies such as AI are enabling insurers to engage with customers proactively, preventing risks before they escalate. The future of telematics and IoT holds promise as new innovations reshape the insurance landscape, with significant benefits for insurers and policyholders alike.
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