Insurance industry leaders have long regarded telematics as a game-changing opportunity. It has the potential to fundamentally change car insurance propositions and impact all areas of the business, from improved risk selection and pricing, reduced claims and improved fraud detection, to an entirely new set of services resulting in higher levels of customer retention.

But now, a groundbreaking analysis by the World Economic Forum reveals that usage-based insurance offers a far greater value to society and customers than it does to industry. The WEF’s Digital Transformation of Industries (DTI) initiative report, in collaboration with Accenture, found that usage-based insurance could save more than 150,000 lives by 2025.

Further, the DTI analysis identified the connected traveller, autonomous driving, and digitizing the enterprise and ecosystem as themes that will be central to the digitization of the automotive industry.

There is a $700 billion opportunity to create value from the digital transformation of the automotive industry, through initiatives such as channel migration to virtual purchases, value-added subscriptions and next-generation servicing. The value created for society is likely to be even higher – up to $3.1 trillion – through reduced crash costs, lower insurance premiums, fewer road casualties and lower carbon emissions.

There are, however, barriers to realizing this value. Regulatory constraints prevent, for instance, original equipment manufacturers from operating as direct-to-market dealers. The ‘innovator’s dilemma’ discourages incumbents from going beyond incremental innovation or partnering with technology companies to deliver more innovation. Finally, without democratizing the flow of profits from usage-based insurance, the telematics solutions that underpin this business model are unlikely to be installed as standard in most cars. As a consequence, efforts to reduce the global death toll from road accidents (currently 1.25 million people a year) are being held back.

These new findings clearly illustrate how unaligned incentives can derail societal gains. Usage-based insurance is not being widely rolled out in countries such as the United States because the profits and costs from the service are being unevenly distributed. In a low-margin environment, it is not common practice for car manufacturers to install the telematics equipment that is needed for usage-based insurance because the cost cannot be easily passed onto consumers.

Usage-based auto insurance means accurately priced insurance – and lower costs for careful drivers – as well as the potential for fewer accidents and reduced crash costs for all stakeholders. A win-win-win for customers, industry and society that is not yet in place – much like seat belts were not mandated in cars when originally conceived.

Learn more by reading the full report:

Digital Transformation of Industries Demystifying Digital and Securing $100 Trillion for Society and Industry by 2025 (PDF)

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