Connected car, services boom is coming (including usage-based insurance)

Berg Insight forecasts that 258 million vehicles will be connected by 2023. Systems for connected cars are evolving and becoming common even in mid-range vehicles, enabling new services. These include usage-based insurance (UBI)

Published on 09 Nov 2018

“There are several connected car services driving demand from consumers, car manufacturers and governments. Major car manufacturers are gradually exploring new use cases and new business models, especially in the areas of concierge premium services, usage-based insurance and personal car sharing. Recently, GM, Jaguar Land Rover and Hyundai launched in-vehicle platforms creating new business opportunities for resellers as well”. Martin Svegander, analyst of Berg Insight, synthesizes on CorCom the trend, illustrated in a recent report, which leads to a very positive forecast on the spread of connected cars in the next 5 years. A tangible situation, waiting for the driverless car.

The number of subscribers to embedded telematics services in cars will reach 258 million worldwide by 2023, states Berg Insight research, according to which the compound annual growth rate (CAGR) is 31.9%: it will rise from 49.0 million registered subscribers at the end of 2017 to 258.1 million subscribers at the end of 2023.

Sales of Oem telematics systems for cars will be the main driver, increasing from 26.8 million units in 2017 to 67.2 million units in 2023 (growth of 71.7%).

Services for connected cars have evolved from diversification element progressively becoming a common feature, even in mid-range vehicles.

Application samples include eCall and roadside support, stolen vehicle tracking, vehicle diagnostics, connected navigation and infotainment, Wi-Fi hotspots, over-the-air updates, in-vehicle payments, usage-based insurance, fleet management leasing and rental, as well as electronic road toll payment. 

However, these applications are usually offered by third party after-sales service providers, although car manufacturers are also exploring the development of “in-vehicle” business platforms that allow the provision of services and the exchange of telematic data to third-party service providers.

Of course, the growth of the connected car market will also be supported by the insurance industry. Telematics has already been used by the insurance industry for at least a decade, Italy has been one of the leading countries in this area thanks to companies such as Octo Telematics.  

And we can still do a lot more to innovate insurance products with the explosion of digital transformation that has affected insurance and the automotive world. One example is usage-based insurance. ​

Usage-based insurance (UBI) 

Usage-based insurance is a type of car insurance policy directly linked to the actual use of the vehicle, and is therefore enabled by the presence in the vehicle itself of a connected device monitoring the use of the vehicle.

According to a recent MarketsandMarkets report, the market for this type of policy will be worth over $95 billion by 2025.

In this market, PAYD – Pay-As-You-Drive policies (another model is PHYD – Pay How You Drive) are estimated to represent the highest potential segment, thanks to several factors such as ease of implementation, lack of complex algorithms to be developed, cost effectiveness for insurers and consumers. Secondly, PAYD insurance encourages consumers to drive less and in an eco-friendly way, reducing vehicle emissions and contributing to global environmental efforts. The less people drive, the more accidental risks associated with drivers are reduced.

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