Auto insurance accounts for nearly half of the world’s insurance premium. Conventional insurers have dominated the field because they have amassed large pools of data about the average inherent risk presented by different types of individuals and their vehicles. But today many cars have been fitted with devices that transmit vastly more detailed, real-time streams of data to those who install them. They will soon be a standard accessory. In effect, cars have been connected to the “Internet of Things.”
The accuracy of the data they deliver is unprecedented in its ability to support the assessment of auto risk, so the telematics box destroys the big-data barrier to entry for those tempted by the world’s $800 billion of auto premium. Other than for extreme loss scenarios, such as major liabilities, or perhaps dramatic natural catastrophes like hailstorms, a conventional insurance company is no longer necessary to get auto risk priced correctly and competitively. And as recent history shows, customers are happy to buy auto cover over the Internet instead of conventional channels.
The scenario is not entirely theoretical. Most motor manufacturers already have an insurance company, and they are best placed to collect information from the dongles they install in their cars. Now they are getting into the telematics business. In 2014, the huge Japanese car components manufacturer Denso Corp. bought Ease Simulation, a telematics business in Pennsylvania. Later in the year, Japanese owned insurer Aioi Nissay Dowa Insurance Europe (ANDIE) bought the British telematics insurance company Insure the Box. ANDIE has strong ties to Toyota. Expect action soon. The auto insurance value chain may look completely different in just a few years.