Usage based insurance set to drive commercial telematics industry
Commercial Telematics is an interdisciplinary branch of information technology and telecommunications, which deals with long distance transmission of information in commercial automobiles. Commercial Telematics devices are used to transfer large amounts of information from the vehicle to infrastructure of other vehicles. Commercial telematics are used in conjunction with telecommunication systems to provide quick and easy informational access. The growth in telecommunications as well as connected vehicles has led to a major growth in the telematics market. Subsequently, this growth in telematics has led to multiple connectivity features being offered in vehicles including usage based insurance.
Usage-based insurance (UBI) telematics devices are used to report driver data to the insurance company and the premiums are set based on this data. The high price of insurance premiums combined with growing telematics products in commercial vehicles will drive the adoption of commercial telematics. Usage based insurance has resulted in reduced premiums, feedback to make driving safer and reduce accidents as well as allowing earlier claims intervention. To date usage based insurance adoption has been limited; but with evolving technology and leading automotive manufacturers and insurance companies companies entering the market, this service should exhibit a high upsurge in sales.
The Commercial Telematics market generated revenue of $14.2 billion in 2014. This market is estimated to grow at a high rate of nearly 10% CAGR through 2020. The major market for commercial telematics is North America with U.S leading the charge. Usage based insurance service is among the fastest growing services for commercial telematics. The usage based insurance service has exhibited high growth in the European region due to favorable governmental regulations such as Monti’s law that mare usage based insurance for commercial companies compulsory. The entry of leading companies such as Progressive (U.S), Ford Motors (U.S), Verizon (U.S), General Motors (U.S) and AXA SA (France) into the usage based insurance market is projected to raise awareness regarding the service leading to increased demand. The entry of these companies in the UBI market has also raised awareness in the APAC market thereby driving sales.
Usage based insurance market accounts for revenue of $1.7 billion in 2014. This revenue if projected to more than double by 2020 as the high premiums of traditional insurance services have led to increased adoption from the fleet management and logistics companies for UBI services. The changing governmental regulations combined with increased awareness in the APAC market will also propel the adoption of usage based insurance.
Government regulations will drive the market as the Highway Bill in the U.S. as well as various tax credits, Monti’s law in Italy and adoption across the rest of Europe will help insurance telematics sector grow as compulsory inbuilt telematics systems will result in increased utilization of usage based insurance. A roadblock for usage-based insurance (UBI) service is the privacy concerns. Usage-based insurance companies will monitor all the aspects of driver data including location, fuel consumption and usage rates. The increased monitoring of driver data has perturbed customers regarding the safety of their private data. However, the European Union has changed the data sharing and privacy laws for telematics, offering increased protection for telematics users and this will ease the privacy concerns.
Commercial telematics has found increased application in the insurance industry as fleet management and logistics companies have preferred usage based insurance over traditional insurance due to cheaper cost. The favorable governmental regulations combined with growing awareness in APAC will result in a market that has the potential for significant growth in the future.
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