The New Auto Insurance Ecosystem: Telematics, Mobility and the Connected Car doc

cognizant reports | august 2012
•
Cognizant Reports
Executive Summary
With the increased use of mobile communications,
the stage is set for property and casualty insurers
to develop more meaningful and mutually ben-
ecial relationships with policyholders. Nowhere
is this more clear than in auto/motor insurance,
where advances in machine-to-machine (M2M)
communication, or telematics, are rippling across
the marketplace, generating data to more pre-
cisely assess risk and reward for policyholders
who adhere to safe driving practices.
For some time, auto manufacturers have
provided connected vehicle services to discern-
ing drivers. This includes GPS, emergency noti-
cation, roadside assistance, concierge services
and other offerings. Today, devices self-installed
or plugged into a vehicle’s onboard diagnos-
tics (OBD) port, or professionally-installed black
boxes, transmit driving behavior and mileage
data directly to carriers’ back ofces. As a result,
many carriers and brokers worldwide are lever-
aging telematics data to create more precise
rating variables that underpin new usage-based
insurance (UBI) products. This represents a sea
change in policy underwriting, where models
The New Auto Insurance Ecosystem:
Telematics, Mobility and the Connected Car
Insurers and auto manufacturers worldwide have set their focus on

telematics as the next wave of creating deeper customer relationships,
resulting in a convergence of new business models for the connected
lifestyle.
have traditionally assessed risk and determined
premiums based on group behavior (typically
demographics-based) and proxy variables such as
credit scores.
1
As insurers’ risk models become more sophis-
ticated through the use of analytics applied to
UBI-generated data, a more precise driver prole
will emerge. Analytics will also streamline and
automate claims processes with real-time alerts
and triggers, further reducing expenses for the
insurer and validating a better segmented book
of business.
As such, telematics-supported UBI programs are
upending the traditional auto insurance business
model. These programs benet both insurers
and consumers by providing data for better risk
assessment, as well as incentive-based, “pay-as-
you-drive” (PAYD) programs. This translates into
more accurately priced insurance premiums and
discounts for good driving behavior. By embracing
telematics-informed UBI programs, our research
shows, insurers can reap substantial returns on
investment, as well as secure a stronger book of
business, with reduced losses.
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UBI programs are moving into the mainstream,
despite numerous technological, regulatory
and privacy challenges. Many major insurers
in Europe and the U.S. already offer them, and
car makers are increasingly rolling out vehicles
with embedded telematics, primarily to monitor
vehicle safety, performance and failures. This
convergence of safe driving and technology
advances aligns with insurers’ incentives to add
telematics-based UBI products to their offerings
in order to attract drivers with better risk proles
through opt-in programs.
For their part, customers are increasingly express-
ing interest in UBI products to help reduce their
insurance costs. This is predicated on the UBI
model’s ability to make insurance more afford-
able for safe drivers, who have traditionally been
treated on par with high-risk users. As insurers
move to the next phase of UBI in the enterprise
and adopt new business models, customer delight
will be the focus, not the exception, as companies
that embrace the changing landscape of mobility,
telematics and an increasingly connected lifestyle
will create new services and experiences for their
policyholders.
UBI: Driving Factors
The insurance industry is witnessing a major
shift in how insurance is bought and sold.
Customized products and services are increas-
ingly being developed, thanks to technology that

can derive meaningful insights from customer
behavior captured at a multitude of touchpoints
and through various means (e.g., smartphones,
connected cars, telematics devices). Auto
insurers are increasingly using consumer behav-
ior data generated by these sources to help craft
UBI products.
Rising penetration of embedded telematics
devices, as well as smartphones integrated with
vehicle connectivity systems, offer insurers a pow-
erful medium to reduce risk, optimize processes,
serve policyholders in real-time and delight
customers. According to Ptolemus Consulting
Group, there have been 54 commercial launches
and 94 trials of UBI underway worldwide, indicat-
ing that UBI is reaching maturity.
2
We believe the growth of the UBI market will be
fueled primarily by the following forces:
•
Evolution of a new insurance ecosystem.
>
Growth of embedded telematics solutions.
>
Connected vehicles.
>
Mobility’s impact on UBI.
•
Increasing adoption of UBI by carriers and
customers.

•
Regulatory changes supporting telematics
adoption.
Evolution of a New Insurance Ecosystem
As the demand for connected cars and lifestyles
continues to rise, players in the new ecosystem
— automakers, insurers, service providers — must
work together to benet from the rich customer
data that is increasingly available. Doing so will
help all constituents offer value-added services
that can potentially drive revenue growth, reduce
costs and improve the bottom line. While in-car
Figure 1
Source: IHS iSuppli
U.S. Telematics Sales Growth
0
5
10
15
20
25
30
35
2011 2017
Millions
Sales of telematics units (OEM installed and
aftermarket devices)
0
2
4

6
8
10
12
14
16
18
2009 2017
Millions
Sales of OEM installed telematics systems, by type
Mobile Device Embedded
CAGR
16.5%
CAGR
22.2%
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connectivity will become ubiquitous, car makers
will offer it primarily through embedded, tethered
and integrated solutions. The growth in embed-
ded telematics, demand for connected-car tech-
nologies and mobile-based telematics solutions
will create huge imperatives for auto insurers and
their business models.
Growth Of Embedded Telematics Solutions
Automotive companies are increasingly embed-
ding telematics in vehicles to monitor system fail-
ures and vehicle performance, while also meeting
user demand for wireless connectivity. By the
end of 2018, the proportion of new vehicles sold

with embedded telematics is likely to reach 80%
of cars on the road in the U.S. and 46% globally,
according to iSuppli.
3
The U.S. is forecast for sig-
nicant growth in the sale of telematics systems
(see Figure 1, previous page).
4
Nearly 4.8 million,
or 80% of global plug-in electric vehicles, are
also expected to come equipped with advanced
telematics systems by 2017, according to Pike
Research.
5
Europe is expected to be slightly
ahead of North America and Asia Pacic in the
penetration of telematics in new cars shipped by
2013, according to ABI Research (see Figure 2).
The growing volume of vehicles with embedded
devices is expected to drive down device prices,
encourage innovation and make it easier for
insurers and customers to embrace UBI prod-
ucts. Early signals appear to conrm this trend.
State Farm and GMAC, for example, already offer
their UBI products to subscribers of GM’s OnStar
service, as well as Ford’s Drive Sync program.
Connected Vehicles: A New Paradigm
Vehicles have evolved from mere transporta-
tion mediums to advanced mobile connectivity
platforms. At the center of this evolution is the

connected-car technology that assists custom-
ers in driving safely, avoiding accidents, lowering
emissions, beneting from insurance telematics
and enjoying connected lifestyle services, such
as on-demand entertainment, infotainment and
concierge services.
Consumers’ increasing appetite for in-car con-
nectivity, along with regulatory mandates for
crash notications and tracking stolen vehi-
cles, are the driving forces behind auto makers
offering connected-car systems (see Figure 3,
next page). Declining hardware and connectivity
costs driven by standardization and economies
of scale are removing the traditional hurdles
that had impeded the growth of connected-car
systems, including high costs, limited consumer
awareness, privacy and safety concerns.
Connected vehicle services enable insurers and
car makers to assist customers when emergen-
cies arise, enabling signicant time savings and
optimization of claims processes. In the case of
an accident, connected vehicle services allow
insurers to keep customers apprised of claim
status, close claims faster and gain feedback,
ultimately leading to increased customer satis-
faction. In addition, these services improve auto
safety by giving drivers hands-free calling and
texting capabilities and providing timely naviga-
tion and roadside-assistance services.
Figure 2

Source: ABI Research
Penetration of Telematics
80
60
40
20
20062005 2011 2012 20132007 2008 2009 2010
Penetration (%)
Percentage of new cars shipping with telematics
Asia-Pacific Europe North America RoW
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Mobility’s Impact On UBI
Rapid advancements in mobile technology, mobile
application software and ubiquitous connectiv-
ity are reshaping the telematics-supported UBI
market. By 2017, car makers are expected to sell
three times the number of mobile telematics
systems sold in 2009, according to iSuppli.
6

Smartphones already have capabilities such as
GPS and accelerometers — connectivity simi-
lar to telematics devices — enabling insurers to
use them as viable aftermarket alternatives to
on-board devices. Ptolemus Consulting estimates
that smartphones will soon become the next
“onboard unit” of the insurance industry.
Frost & Sullivan forecasts smartphone penetra-
tion in North America to grow from 23.9% in

2009 to 67.1% percent of subscribers by 2015
(see Figure 4, next page). Smartphones’ ability
to wirelessly connect to onboard devices using
Bluetooth is expected to drive UBI growth. This
will make it easy for insurers to use mobile
telematics applications to track the driving activ-
ity and behaviors of anyone with a smartphone.
In addition, using smartphones for insurance
telematics solutions will help insurers and car
makers easily share critical feedback on driving
behavior with customers. It will also provide
customers with a transparent and real-time feed-
back mechanism to check their driving behavior
and vehicle health stats. Innovative insurers can
offer customers apps and plug-ins to test new
telematics technology. With appropriate incen-
tives, customers can be encouraged to participate
in such trials.
In an industry with little differentiation in prod-
ucts, and competitors quickly copying innova-
tion, customer service is a major area for achiev-
ing a competitive edge. Using mobility, insurers
can fundamentally transform their engagement
with customers. By interacting proactively and
frequently with customers and offering value-
added services to replace sporadic and often
transactional services, insurers can build brand
loyalty and increase customer retention. In a
highly competitive market with information-savvy
customers, mobility will play an important role in

marketing, selling and serving new products to
attract and retain customers, especially younger
drivers more prone to using such technologies.
Increasing Adoption of UBI by Carriers and
Customers
The number of insurance telematics users is
projected to reach 89 million globally by 2017,
growing at a compound annual growth rate
(CAGR) of 90% from the 1.85 million estimated
in 2010.
7
Europe is expected to lead the insurance
telematics market, reaching 44 million users by
2017 from the 1.5 million in 2010 (nearly half of
the entire number of users across the globe).
8

Moreover, telematics-based insurance is expected
to cover 100 million vehicles by 2020, generating
premiums of $60 billion, according to Ptolemus
Consulting.
Pioneered by carriers such as Progressive almost
a decade ago, more than half of the leading
carriers in the UK and U.S. have a telematics
insurance program today.
9
In the U.S., Progressive
has implemented a UBI product called Snapshot
in over 40 states. Meanwhile, carriers such as
Allstate, Hartford, GMAC, AAA, Travelers, Safeco

and State Farm Insurance are actively conducting
their own respective market trials and offerings.
Despite all of this activity in the U.S., European
carriers such as Allianz, AXA, Norwich Union
and many innovative brokers are ahead,
having launched UBI programs and installed more
telematics units than in the U.S.
10
Customers are increasingly indicating inter-
est in usage-based insurance offerings that
Global OEM Connected Car Systems
Year 2012 2017
Penetration (Millions) 11.4 60.1
Year 2012 2016
Shipments (Millions) 8.22 39.5
Source: ABI Research
Figure: 3
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reward good driving behavior with lower
premiums. Already, telematics-enabled UBI pro-
grams for personal auto insurance markets are
being offered by carriers across North America
and Europe. This is critical in markets such as
the U.S., where many lower-income drivers
nd that their insurance premiums exceed
their car loan repayments. In the UK, insurance
premiums have risen 40% from 2010 to 2011 due
to an increase in fraudulent claims.
Today, more than two million subscribers spread

over ve continents subscribe to telematics-sup-
ported insurance policies, according to Ptolemus
Consulting. The company expects UBI policies to
exceed 140 million by 2020 globally.
11
Within ve
years, UBI is expected to account for 20% of all
vehicles insured in the U.S.,
12
and by the end of
2011, Europe had 1,200,000 customers using
telematics-based PAYD insurance, with a majority
concentrated in France, Spain, Italy and the UK.
13

Frost & Sullivan projects UBI activations in the
North American market will rise from 137,000 in
2010 to 1.1 million by 2017, a 34.66% CAGR.
14
In today’s challenging economy, many auto
insurance customers are willing to switch car-
riers if they are offered discounts on premiums
(see Figure 5, next page) and rewards for safe
driving. Moody’s warns that insurers that delay
offering UBI will lose business to more proactive
players.
15
The latter will gain signicant competi-
tive advantage in pricing and policy retention by
using precision pricing models that use variables

more tightly correlated to loss costs.
Regulatory Changes Supporting Telematics
Adoption
Many regulations are emerging that are expected
to drive telematics adoption and thereby the
potential for insurers to offer UBI products.
For instance, the European Court of Justice’s
Gender Ruling prohibits insurers from using
gender as a criterion for underwriting. Telemat-
ics-based UBI can help carriers by using
non-gender-related parameters to accurately
assess driver risk and comply with this regula-
tion. The European Commission’s eCall,
16
Russia’s
ERA-GLONASS
17
and Brazil’s SIMRAV
18
are all
mandates that require vehicles to be tted with
systems to assist drivers in emergencies. Upcom-
ing mandates such as Contran 245
19
require
vehicles produced in or imported to Brazil to
have GPRS
20
vehicle tracking modules to reduce
vehicle theft. The enhanced connectivity gained

through these on-board devices makes it easier
to assist drivers in an emergency and track and
recover stolen vehicles.
Financial Benets
For insurers operating in a challenging environ-
ment, telematics-based UBI presents a valuable
opportunity to drive down costs through
data-driven pricing and pass along discounts
to customers, while enhancing the top line and
shoring up the bottom line (see Figure 6, page 7).
•
Top-line drivers: Popular UBI products such as
manage-how-you-drive (MHYD)
21
and PAYD
22

allow carriers to offer premium discounts
to customers based on certain driving
Source: Frost & Sullivan
Figure 4
Note: All figures are rounded; the base year is 2009.
U.S. Smartphone Market
Mobile Subscribers (Millions)
218.9
202.1
177.9
157.3
136.3
120.7

106.3
68.9
89.1
117.3
144.3
171.2
193.5
216.6
0
50
100
150
200
250
300
350
2009 2010 2011 2012 2013 2014 2015
Feature Phones Smartphones
Mobile device connections forecast (North America)
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parameters and behaviors. Carriers offer
discounts of 5% to 10% for just signing up for
UBI programs. Leading insurers claim that by
using UBI, customers save 10% to 15% on their
premiums and that this can increase to 30%
based on their driving behavior and vehicle
usage. Embracing UBI allows carriers to retain
customers and acquire new ones from compet-
itors lagging behind this market trend.

Additionally, telematics allows insurers to
develop new auxiliary revenue channels, as
car makers introduce add-on connected-car
services, such as in-car entertainment, WiFi,
real-time navigation and emergency and road-
side assistance. Insurers offering additional
value for the consumer will also offset the ini-
tial costs of a UBI initiative.
Integration of smartphones with connected-
car systems also offers a new source of reve-
nue for players in the insurance telematics sup-
ply chain. By 2016, Juniper Research estimates
92 million vehicles will have smartphone-
integrated technology. Additionally, new pro-
tocols such as MirrorLink from the Connected
Car Consortium are expected to make smart-
phone integration a standard feature on new
vehicle models, according to Juniper. Machina
Research estimates that by 2020, in-vehi-
cle connectivity in 90% of new cars will add
$600 billion in value to the connected life
23

industry (see Figure 7, page 8) and $245 billion
in revenues from the sale of connected devices
and services such as PAYD auto insurance.
•
Signicant ROI and bottom-line drivers:
Claims payout and related expenses consume
up to 80% of insurers’ premium income. The

following are the key UBI-based bottom-line
drivers:
>
Reduced claims volume: UBI programs
encourage safe driving behavior that
results in fewer accidents, helping insur-
ers reduce claims payout and improve the
bottom line. According to a Cisco Internet
Business Solutions Group (IBSG) report,
vehicle connectivity can contribute 30% to
80% of savings in claims and cost contain-
ment. As insurers further analyze driving
behavior, greater insights will emerge that
will benet underwriting and claims, as well
as sales and retention.
>
Reduced claims processing costs:
Technologies such as advanced crash
notication can provide rst notice of loss
(FNOL) for insurers to aid in response time
and triage of claims, generating savings in
overall claims expenses. With more accu-
rate accident data available in real time —
combined with geospatial data on roadways
and other factors — insurers can more accu-
rately and efciently settle claims, detect
fraud and offer immediate assistance, such
as emergency response, tow, rental car and
repairs.
Insurers can also deliver detailed accident

information in real-time to service partners
that offer roadside assistance and repair
Figure 5
Percent of respondents
Discount
Response base: 1,080 auto policyholders
Source: Deloitte Automobile Consumer Survey 2012
Telematics Incentives
How much of a discount would policyholders require to install a telematics device to monitor their
driving experience?
47%
22%
17%
11%
2%
0% 10% 20% 30% 40% 50%
Over 20%
16%-20%
11%-15%
6%-10%
1%-5%
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services. This further streamlines claims
processing and enables volume discounts,
as they can route claims to authorized and
connected service partners. Faster claims
processing results in higher customer
satisfaction, lower costs for repair and
towing, and lower risk of disputes and

claim costs — all of which contribute to the
bottom line with reduced losses, reduced
loss expense, reduced severity of claims
and reduced fraud.
Insurers have the most to benet from
connected cars and telematics. According
to the Cisco IBSG report referenced earlier,
vehicle connectivity can save an average
of $280 per connected vehicle per year
in crash-related value and an additional
$100 across the insurance value chain (see
Figure 8, page 9).
24
Additionally, vehicle
connectivity can prevent 80% of reported
crashes and reduce 20% to 30% of costs
incurred in enforcing trafc laws (see
Figure 9, page 10).

UBI Benefits
ECONOMIC BENEFITS
Top-Line Drivers Effect Impact
Launch of UBI products Arrest customer attrition Protect top line
Launch of UBI products Acquire new customers Drive top-line growth
Launch of UBI products Improve renewal retention Drive top-line growth
Connected-car systems Improve customer response time Create customer delight and
improve retention
Bottom-Line Drivers Effect Impact
UBI-incentivized safe driving Reduce chance of accidents Lower claims volume and costs
Event data generated by telematics Enhance efciency of claims

processing
Lower claims processing costs
Event data generated by telematics Enable early detection and
prevention of frauds
Lower fraudulent claims cost
Reduction or elimination of towing Reduce downtime, tow charges,
impound fees and rental car costs
Reduce or eliminate associated costs
Automated subrogation recovery Establish fault, reduce cycle time
in claims processing
Lower claims costs and cost of
operations
Driving behavior data availability Enable pricing based on risk proles Lower customer acquisition costs
Investments in technologies to
adopt UBI
Upfront and ongoing costs:
Devices, connectivity, data capture,
storage, analysis
While UBI entails its own set of costs,
they are offset by the net benets vs.
traditional insurance products
SOCIETAL BENEFITS
Drivers Effect Impact
Encourage safe driving Reduce chance of accidents Enhance safety levels of citizens
Encourage safe driving Reduce chance of accident
severity and loss of lives
Create safer roads, less accident-
prone scenario
Fight vehicle theft Allow efcient tracking and
recovery of vehicles

Lower societal expenses
Accurately assess risk for pricing Reward safe drivers with lower
insurance premiums
Enable affordable insurance
ENVIRONMENTAL BENEFITS
Drivers Effect Impact
Increase use of congestion-free
routes and limit vehicle usage
Reduce fuel consumption Create a cleaner environment
Data on vehicle health statistics Improve vehicle maintenance Reduce Co
2
emissions
Source: Cognizant Research Center Analysis
Figure 6
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>
Reduced costs related to fraudulent
claims: Data from the National Insurance
Crime Bureau indicates that more than
10% of P&C claims are fraudulent, adding
up to over $30 billion annually and leading
to across-the-board increases in premiums
for customers. Using analytics and real-
time information generated by telematics
devices, insurers can weed out fraudulent
claims. Employing analytics can help insur-
ers reduce up to 80% of fraudulent claims,
according to the same Cisco IBSG report.
To reap the benets of UBI, insurers need to

invest in telematics devices and infrastructure.
This entails upfront and ongoing costs, includ-
ing telematics data management, analytics and
connectivity costs. These costs will vary based
on whether devices are installed by a third party
or are self-installed, as well as data transmission
expenses. Additional fees — including consulting,
integration, analytics, new services, software and
subscriptions — vary by provider and geography,
etc. However, the net benets of telematics-based
UBI products outweigh the costs incurred.
Societal and Environmental Benets
There is growing recognition by carriers,
customers, regulators, environmentalists and
consumer and safety advocates that telemat-
ics-based UBI products offer many monetary,
societal and environmental benets. UBI
provides an incentive for customers to drive
safely, thereby reducing accidents, lowering the
severity of accidents and saving lives. Other
benets include enhanced highway transporta-
tion systems, reduced road congestion, reduced
costs for recovering stolen vehicles and increased
consumer-oriented services.
Connected-Life Business Impact
Connected life is a world where devices that are seamlessly connected to each other allow consumers to
enjoy services and experiences on-demand, anywhere and anytime.
Category of Impact Type of Benet
Connected-life market revenue Connected PAYD insurance device, device/service management,
provision of connectivity and sale of PAYD insurance.

Connected-life service improvements The ability to better tailor insurance policies to individual driver
needs.
Connected-life cost reduction Cost reductions for drivers by paying only for needed coverage; cost
reductions for insurers through higher quality information and the
ability to better manage risk and enforce policy terms and conditions.
Top 10 Connected Applications in 2020 Value to the Connected Life
Connected Car $600 billion
Clinical Remote Monitoring $350 billion
Assisted Living $270 billion
Home and Building Security $250 billion
Pay-As-You-Drive Car Insurance $245 billion
New Business Models for Car Usage $225 billion
Smart Meters $105 billion
Trafc Management $100 billion
Electric Vehicle Charging $75 billion
Building Automation $40 billion
Source: Mobile World Congress
Figure 7
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Figure 8
Source: Cisco IBSG, 2011
Connected-Car Savings
Annual benefits per connected passenger vehicle, by source
New
Profit Pools
Auto OEMs
Auto OEMs
& Dealers
Car Insurance

Government
$430
$380
$280
$180
$100
$1,400
Lower fuel usage, emissions, congestion
Avoidance of crashes and associated
societal cost
Improved service, retention; lower service,
warranty costs
Decreased electronic vehicle architecture
complexity and cost
Point of interest, location-based services,
car sharing, app store for the road, etc.
UBI also makes insurance more affordable for
safe drivers, who have traditionally been treated
on par with high-risk users. According to the
AA British Premium Index, the average cost of
car insurance is very high for 17- to 22-year-olds,
averaging £2,481. In its study of 10,000 driv-
ers aged 17 to 25 years, Cooperative Insurance
Company (a UK-based carrier) found that those
with telematics-based insurance were 20% less
likely to be involved in a car crash, and their
average cost of claims was 30% lower than driv-
ers with traditional insurance. The company is,
therefore, offering safer young drivers discounted
renewal premiums (£790) that are nearly half its

average young driver premium (£1,300).
25
Insurers and car makers are also deploying
gamication to promote safe driving behavior.
An example is Nissan’s Leaf model, which uses
the company’s "Eco Mode" software to collect
variables such as power usage and speed to
provide feedback to drivers on their driving,
using a display located behind the steering wheel.
Meanwhile, other insurers are using vital rating
stats from driving data gathered through apps
running on smartphones, connected to vehicles,
to rate drivers for safe driving and use the score
to offer premium discounts.
As drivers become aware of the savings they can
realize by limiting how much they drive and how
they drive, they are likely to alter their behav-
ior. The result: fewer crashes and reduced trafc
congestion, fuel consumption and emissions.
Challenges
Insurers face signicant challenges in implement-
ing telematics-based UBI. They must overcome
region-specic and stringent regulations, cus-
tomers’ privacy concerns and the need to develop
capabilities for managing, mining and analyzing
complex telematics data, all within a fragmented
telematics ecosystem.
•
Regulatory issues: In the U.S., each state
has its own laws and rules for telematics-

based UBI. Further, each state has different
requirements covering such products, which
creates operational complexities for cross-
state carriers. For instance, Illinois requires
carriers to publicize their underwriting
models, while California limits parameters
for product pricing. This hampers insurers’
ability to create competitive products and
protect their IP. While regulators favor lower
premiums for good driving, they do not have
a clear stand on raising premiums for bad
driving, impacting carriers’ competitiveness.
•
Privacy issues: An early signicant hindrance
to UBI adoption, especially in the U.S., is
consumer concern over the types of data
being collected, particularly related to GPS
location, braking patterns and speed. Issues
related to privacy infringement, and how
insurers will handle this data, are seen as
potential roadblocks for UBI adoption. Insurers
need to continually allay customer fear over
how they will protect customer privacy. It will
be a signicant challenge for insurers to con-
vince customers and privacy advocates and
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regulators that consumer information will be
secure and used only as stated.
•

Operational issues: Insurers are often
overwhelmed by the storing and analysis of
the massive amounts of data generated by
telematics. Also, UBI projects are extremely
complex in nature, requiring extensive data
management and analytics capabilities.
Insurers also face challenges resulting from
the fragmented telematics ecosystem, in
which many auto makers, insurance carriers,
telematics service providers and new play-
ers are vying for a slice of the market with
software and connected navigation products.
Insurers may nd it difcult to pass on the
costs of device acquisition, installation and
operation to customers.
Further, the plethora of telematics devices
available on the market make it difcult for
insurers to determine which device best suits
their needs. With patented UBI technologies
and no publicly available repository of users’
driving data, insurers face an uphill challenge
in quickly starting a UBI program. Most have
begun with a pilot program to test and review
devices and data capture, assess the impact
to their existing systems and incorporate into
their UBI product design, with the intent of
moving forward with a UBI offering.
•
Challenges with smartphone-based tele-
matics: The telematics-based insurance eco-

system is as heterogeneous as the mobile
ecosystem, and the combination increases
overall complexity. A lack of standardization in
data and auto platforms makes it challenging
for insurers to integrate mobile devices into
their IT infrastructure. Also, mobile devices
are a potential distraction, as drivers use them
for calls and texting while driving, which is a
major cause of accidents. Also, insurers need
to authenticate whether the mobile device was
indeed in the vehicle at the time of driving.
Many factors are beyond the insurer’s con-
trol, including whether the driver is carrying
his or her phone while driving, that the device
is not being carried by someone else, that
the smartphone is charged and that relevant
insurance apps are running. As the device is
not tied to the vehicle, insurers will not be able
to offer stolen vehicle services. Smartphone
devices are not as rugged, secure or reliable
as embedded onboard devices, and they open
Figure 9
Source: Cisco IBSG estimates, 2011
UBI Ripple Effect
Impact of vehicle connectivity on U.S. insurance value chain
Usage &
Behavior
Crash
Prevention
Fast & Correct

Response
Claims & Cost
Containment
Connected Law
Enforcement
$715B
Addressable Cost Base
$515B Crash Costs
+$165B Insurance Premiums
+$35B Traffic Services / Law Enforcement
10% - 30%
Premiums
20% - 35%
of Crashes
5% - 15%
Savings
30% - 80%
Savings
20% - 30%
Savings
• PAYD: Usage-based insurance
• MHYD: Driver-behavior-based insurance
• Vehicle health monitoring and maintenance
• Driver vitals monitoring / distraction alerts
• Safest-route guidance
• ADAS + V2V + V2I: passive and active correction
• eCall/ACN reduces severity of injuries and saves lives
• Virtual black box transmits vehicle crash data/video
• Driver vitals/health data transmitted to first responders
• Reduction of survey and investigation costs

• Fraud prevention and reduction (~80%)
• Stolen vehicle tracking/location
• In-network partners with pre-negotiated rates
• Pay as you speed
• Virtual violation detection and notification
• Automated payment
cognizant reports
11
up greater opportunity for device tampering,
lowering insurer trust in the data generated by
these devices.
The Road Ahead
The insurance industry is undergoing a radi-
cal makeover, shaped by rapid advancements
in technology and consumer behavior and pref-
erences. Forward-looking insurers need to assess
their current business models in light of chang-
ing marketplace and consumer requirements.
Meeting customer needs and serving them well
will be key to continued growth. Telematics and
mobility have immense potential to help insur-
ers by improving the quality and frequency of
customer interactions.
Build Winning Strategies
As in any highly competitive market, gaining the
rst-mover advantage in the telematics arena
will be critical. Proactive insurers should create
systems that can manage data collected from
telematics-based UBI programs, as well as employ
powerful technologies such as analytics to glean

useful insights from this data about customers
and their preferences. Easing customer concerns
about privacy issues will aid in improving market
penetration, and providing customers with visibil-
ity into the data captured about them and how it
is used will help build much-needed trust.
Identify the Right Partners
Identifying the right partner is critical for insur-
ers planning to enter or strengthen their foothold
in the telematics-based UBI market. With data
being central to the success of any UBI program,
insurers should choose a provider that can offer
end-to-end data solutions, as well as strong
expertise in aggregating, storing and analyzing
large volumes of data.
As the market evolves and consumer preferences
change, insurers also need solutions that are ex-
ible and scalable. Service providers should exhibit
deep expertise in the insurance sector and thor-
ough knowledge of the markets in which they
operate. Insurers should also look for partners
that can deal with multiple telematics devices
and data platforms and provide exible, pay-per-
use pricing models and managed services. As UBI
products and accompanying value-added services
emerge, the partner should also offer UBI admin-
istration and business process optimization. In
addition, the partner should have relationships
with car makers to help insurers offer additional
value-added services for a connected lifestyle.

Service providers should also have strong
alliances with telematics platform providers and
device manufacturers, as well as deep exper-
tise in integrating these devices with enterprise
systems. As telematics-based UBI is still
evolving, insurers should choose a partner with
strong project management experience and the
ability to offer strategic consulting on develop-
ing a roadmap for telematics-based products that
suits current as well as future requirements. (For
more details, read our report,
The Telematics
Advantage: Growth, Retention and Transforma-
tional Improvement with Usage-Based Insurance
.)
Insurers will also need a service provider that
can develop strategies for archiving raw data
feeds for future analytics, as well as addressing
long-term data integration needs. Given the
competitiveness of the market, partners should
also offer innovative solutions that can address
the signicant challenges insurers face when
entering this market.
Embracing New Business Models
Increasingly, customers are demanding products
and services tailored to their needs. Consumers
looking to save money in a challenging economy
are nding telematics-based UBI attractive. Insur-
ers, too, are nding they can no longer afford
to rely on traditional business models, espe-

cially when disruptive forces such as telematics,
mobility, the connected car and analytics are
redening the core of the market. Further,
advances in technology that make telematics
devices more convenient, affordable and effective
will drive the growth of telematics in insurance.
Winning insurers will look to continually engage
customers in innovative ways, offering high-
quality value-added services to meet their
evolving needs.
cognizant reports
12
Footnotes
1
Stephen Brobeck and J. Robert Hunter, “Lower-Income Households and The Auto Insurance
Marketplace: Challenges And Opportunities,” Consumer Federation of America, January 2012,
/>.
2
“How UBI Will Radically Change Insurance Economics,” Ptolemus Consulting, Telematics Update, 2012,

0&cValue=1
.
3
“Embedded Telematics in the Automotive Industry,” IHS iSuppli, November 2011,
http://gallery.
mailchimp.com/e68b454409061ef6bb1540e01/files/Embedded_Telematics_in_the_Automotive_
Industry_sw_iS.pdf
.
4
Anna Buettner, “U.S. Continues to Lead OEM Telematics Market,” IHS iSuppli, January 2011,

/>to-lead-oem-telematics-market.aspx
.
5
Cheryl Kaften, “By 2017, Most PEVs Will 'Get the Show on the Road' with Advanced Telematics,” Tech-
nology Marketing Corp, June 2012,
/>2017-most-pevs-will-get-show-the-road.htm
.
6
Anna Buettner, “U.S. Continues to Lead OEM Telematics Market,” IHS iSuppli, January 2011,
/>to-lead-oem-telematics-market.aspx
.
7
“89 Million Insurance Telematics Subscribers Globally by 2017,” ABI Research, February 2012,
/>.
8
“Europe to Lead Insurance Telematics Market, with More Than 44 Million Subscribers by 2017,”
ABI Research, June 2012,
/>.
9
Catherine Stagg-Macey, “Telematics-Based Insurance: Has Its Time Finally Arrived?” Celent,
January 2012,
/>.
10
Mike Hales, Joe Reifel, Gang Xu and Andrew Beebe, “Insurance Telematics: The Game Changer,”
A.T. Kearney, March 2010,

telematics-the-game-changer/13-658.htm
.
11
“Insurance Telematics,” Ptolemus Consulting, 2012,

evupdatelz/lz.aspx?p1=05900062S2941&CC=&p=1&cID=0&cValue=1
.
12
“Usage-Based Insurance,” National Association of Insurance Commissioners, June 2012,
/>.
13
“Insurance Telematics,” Ptolemus Consulting Group, May 2012,
/>abstract
.
14
“Mileage-Based Premium Drives the Telematics-Enabled Usage-Based Insurance Market,” Frost &
Sullivan, June 2011,

gon11071=ATMI2
.
15
“Moody’s: Auto Insurers Offering Usage-Based Products Gain Advantage,” Insurance Telematics,
December 2011,

offering-usage-based-products-gain-advantage/13-970.htm
.
cognizant reports
13
16
An initiative by the European Union that helps motorists receive immediate assistance when they are
involved in a collision anywhere in the EU region.
17
An emergency response system that automatically activates and transmits the vehicle’s coordinates
to the nearest emergency response center to provide emergency services.

18
Legislation introduced by the Brazilian government to ght high levels of vehicle crime.
19
A law enacted by Brazil to ght vehicle theft by using GPRS modules that allow vehicles to be tracked
and immobilized.
20
General Packet Radio Services.
21
Allows users to reduce their premiums by improving their driving using the feedback provided by
the insurer.
22
Allows users to pay insurance based on how much a vehicle is driven during the policy term. Users
can pay for the miles they expect to drive either in a lump sum or installments, allowing insurers to
offer rebates for unused miles and charge for any extra miles driven. Alternatively, users can pay the
premiums based on time, such as monthly or bi-monthly vehicle usage.
23
A world with devices that are seamlessly connected to each other, allowing consumers to enjoy
services and experiences on-demand, anywhere and anytime;

overview-and-vision/
.
24
“Connected Vehicle Insurance: The Business of Preventing Crashes,” Cisco, April 2011,
/>.
25
“Twenty Percent Drop in Car Accidents Thanks to Telematics Insurance,” The Co-operative Banking
Group, April 2012,
/>872357&pagename=Corp/Page/tplCorp&currart=1334211464216&currmth=4
.
References

•
“2012 Global Insurance Outlook,” Deloitte, 2012,
/>Local%20Assets/Documents/FSI/US_FSI_Global%20Insurance%20Outlook%202012_011312.pdf
.
•
“The Connected Car – Finally Coming True?” Arthur D. Little, 2012,
/>tx_adlreports/ADL_AMG_2012_Connected_Car.pdf
.
•
“Connected Car Market Speeding Ahead,”
Connected World
, June 2012,
nected
worldmag.com/latestNews.aspx?id=NEWS120601060257683
.
•
“Driving Operational Excellence in Claims Management,” Deloitte, February 2011,
oitte.
com/assets/Dcom-UnitedStates/Local%20Assets/Documents/FSI/US_FSI_DrivingOperational
ExcellenceInClaimsManagement_022311.pdf
.
About Cognizant
Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process
outsourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered
in Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep
industry and business process expertise, and a global, collaborative workforce that embodies the future of work.
With over 50 delivery centers worldwide and approximately 145,200 employees as of June 30, 2012, Cognizant is a
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All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by any
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Credits
Author and Analyst
Aala Santhosh Reddy, Senior Research Associate, Cognizant Research Center
Subject Matter Experts
Kimberley J. Gunther, Telematics Practice Leader, Cognizant Insurance Business Unit

Jeff Wallace, Assistant Vice President and Cognizant Mobility Practice Leader
Design
Harleen Bhatia, Creative Director
Suresh Sambandhan, Designer
The author would like to acknowledge the research support provided by Saket Ganeriwal,
Senior Research Associate, Cognizant Research Center.
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