Telematics market to reach $355.6m by 2026, says new report
Telematics - the interdisciplinary field that encompasses telecommunications, electrical engineering, vehicle technology and AI, is seeing massive global growth as the automobile industry becomes further integrated with the IoT, says a new study.
The , which carried out in-depth analysis of the insurance telematics market via its cloud, on-premises and applications in both passenger and commercial vehicles, found that the industry has grown from a predicted valuation of $1574.2m in 2019.
Telematic growth factors
The telematics industry is made up of a combination of technologies that collect vehicle data and send it to external systems. It is heavily reliant on mobile technology and is installed by auto manufacturers in the form of a plugin ‘black box’ solution that gathers information on vehicle health, driver safety and mileage.
Demand for telematics services has been boosted by the pay-per-mile insurance sector along with increasing numbers of laws and regulations that are related to driver safety. Telematics provides insurers with the opportunity to create tailored cover for drivers, rewarding safe practices and reducing premiums based on mileage use.
The self-driving vehicle industry and the rollout of 5G is also expected to increase the use of telematics as connectivity and technology increases the efficiency of real time data collection and analytics.
Harnessing large volumes of data from real-time sources can help insurers develop new products and refine pricing strategies. When combined with a robust operating strategy, advanced analytics can significantly increase underwriting profitability and provide a valuable market differentiator.
Telematics and carbon emissions
In line with the Paris Climate Agreement to reduce carbon emissions to zero (where possible) by 2030, telematics are being used to monitor the environmental impact of combustion engines on the environment.
With the increased production of hybrid and electric vehicles, with black box technology integrated into cars and commercial vehcles at the point of manufacturing, use of such technology will inevitably skyrocket. This is because telematics can be used on an industrial scale to help businesses to evaluate the level of emissions their fleets produce and make decisions that would allow them to reduce their carbon footprint.
UBI - or Usage Based Insurance is also expected to increase as the telematics market increases in size. Part of the attraction, say analysts, is the fact that premiums are created based on driving activity and driver performance, which results in a much fairer system of cover.
Cloud technology is boosting adoption and uptake as the passenger vehicle segment becomes increasingly active in managing fleets of insured cars in a digital supply chain. Currently, data suggests that North America is the fastest growing segment as US insurtechs have embraced the concept of telematics technology and integrated it into their cloud network.
Global telematics uptake in 2021
Top 15 countries leading the way in telematics, by order of regional adoption.
- The Nordics
- South Korea
Telematics global facts and figures for 2021
- The vehicle telematics market is predicts to be worth $139.42m by 2026, growing at a rate of CAGR 14.7%
- According to a research report 2020, the Telematics Control Unit market size was valued as $2675.5m in 2020 - and is predicted to expand in value to $120.60m by 2027 - a CAGR of 24%
- The Automotive Telematics market size also has an estimated growth trajectory of CAGR 15.44% - increasing in size from $76,942.44m in 2019 to $182,191.26m in 2025
- The Connected Car market size will expand at a CAGR of 17.42%, from 64.9m to 170.25m by 2026
Insurtechs are winning the race with legacy system companies
Nestled in its own place within the world of financial services, insurance is arguably more unpopular than retail banking.
That’s hardly surprising given that, from a customer service perspective, insurance is something of an off-kilter transaction. You pay a sizable premium in exchange for a service you hope you will never have to use. This image problem is exacerbated by ubiquitous tales of insurers not paying out when it is time to make a claim.
The insurance sector has long been due to an overhaul, and this is where the disruptive force of insurtech comes in - one of fintech’s most upwardly mobile subcategories. Accordingly, last year, insurtech in the UK alone attracted £262m in investment, a growth of 60% on 2019, according to Tech Nation. Insurtech’s momentous growth has been captured in a new report by The AI Journal exploring this burgeoning sector.
What exactly is insurtech?
Put simply, insurtech refers to technological innovations that seek to make insurance cheaper to buy and more efficient to use. In a similar vein to fintech, the large, established institutions have been dipping their toes into insurtech, but it’s the disruptors who are genuinely looking to shake up the status quo, diving into and exploiting those areas that traditionalists have little imperative to explore.
Examples are price comparison sites (one of the earliest forms of insurtech that was eventually snapped up by the insurers it initially sought to disrupt), claims software, customisable policies, or even smart-tech-enabled dynamic policies whose premiums can fluctuate depending on changing circumstances.
The latter, for instance, could use someone’s fitness tracker or smartwatch to monitor fitness levels, thus reducing the premium of a life insurance policy; or track a GPS system that records the location of a car and assesses risk levels accordingly.
Most consumers tend to shop around for their insurance needs and perhaps end up buying their contents insurance with one provider, their car insurance with someone else, and their pet insurance with yet another underwriter. Managing all these different policies, with their varying renewal dates and payment terms can be complex. This has led to the increase in apps that pull everything together.
More prosaically, insurtechs are developing AI that uses machine learning to act as an insurance broker, eliminating the need for a human intermediary and therefore offering more cost-effective and impartial advice.
Insurtechs and risk
But there are some obstacles in the way of insurtech’s continued evolution.
Insurance companies are averse to risk. Understandably so, as at the crux of the industry is the role of the actuary, whose job it is to analyse and measure the probability and risk of future events. So it’s little wonder that there’s a reluctance among the traditional players to welcome the disruption that insurtech brings.
Insurance is heavily regulated, a minefield of legality and labyrinthine jurisdiction, which means the idea of shaking it up can be anathema. And why would they, when their old-school business models are working perfectly fine?
There’s an understandable nervousness and unwillingness to work with startups, who themselves need to work with the bigger firms in order to underwrite risk.
While it seems like a catch-22 situation, there is growing, if cautious, interest from insurance companies, who can see the benefits of insurance with a friendlier face, innovative solutions, and a competitive edge through differentiation. As that tentativeness dissipates, the growth of insurtech will gather even more momentum.
Tom Allen's analysis is based on the findings of a new report on the fintech and insurtech industries produced by The AI Journal.