1. The document discusses the emergence of telematics and usage-based insurance (UBI) programs, which use data from connected cars and devices to more accurately assess driver risk and reward safe driving. 2. It notes that embedded telematics, smartphones, and regulatory changes are driving more adoption of UBI by insurers and customers. Insurers can benefit from better risk assessment and claims processing, while customers can receive lower premiums for safe driving. 3. The growth of telematics is expected to create new opportunities for insurers to engage customers through mobile apps and services, helping to build loyalty and competitive advantage.

1. • Cognizant Reports
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.
Executive Summary have traditionally assessed risk and determined
With the increased use of mobile communications, premiums based on group behavior (typically
the stage is set for property and casualty insurers demographics-based) and proxy variables such as
to develop more meaningful and mutually ben- credit scores.1
eficial relationships with policyholders. Nowhere
is this more clear than in auto/motor insurance, As insurers’ risk models become more sophis-
where advances in machine-to-machine (M2M) ticated through the use of analytics applied to
communication, or telematics, are rippling across UBI-generated data, a more precise driver profile
the marketplace, generating data to more pre- will emerge. Analytics will also streamline and
cisely assess risk and reward for policyholders automate claims processes with real-time alerts
who adhere to safe driving practices. and triggers, further reducing expenses for the
insurer and validating a better segmented book
For some time, auto manufacturers have of business.
provided connected vehicle services to discern-
ing drivers. This includes GPS, emergency noti- As such, telematics-supported UBI programs are
fication, roadside assistance, concierge services upending the traditional auto insurance business
and other offerings. Today, devices self-installed model. These programs benefit both insurers
or plugged into a vehicle’s onboard diagnos- and consumers by providing data for better risk
tics (OBD) port, or professionally-installed black assessment, as well as incentive-based, “pay-as-
boxes, transmit driving behavior and mileage you-drive” (PAYD) programs. This translates into
data directly to carriers’ back offices. As a result, more accurately priced insurance premiums and
many carriers and brokers worldwide are lever- discounts for good driving behavior. By embracing
aging telematics data to create more precise telematics-informed UBI programs, our research
rating variables that underpin new usage-based shows, insurers can reap substantial returns on
insurance (UBI) products. This represents a sea investment, as well as secure a stronger book of
change in policy underwriting, where models business, with reduced losses.
cognizant reports | august 2012

2. UBI programs are moving into the mainstream, insurers are increasingly using consumer behav-
despite numerous technological, regulatory ior data generated by these sources to help craft
and privacy challenges. Many major insurers UBI products.
in Europe and the U.S. already offer them, and
car makers are increasingly rolling out vehicles Rising penetration of embedded telematics
with embedded telematics, primarily to monitor devices, as well as smartphones integrated with
vehicle safety, performance and failures. This vehicle connectivity systems, offer insurers a pow-
convergence of safe driving and technology erful medium to reduce risk, optimize processes,
advances aligns with insurers’ incentives to add serve policyholders in real-time and delight
telematics-based UBI products to their offerings customers. According to Ptolemus Consulting
in order to attract drivers with better risk profiles Group, there have been 54 commercial launches
through opt-in programs. and 94 trials of UBI underway worldwide, indicat-
ing that UBI is reaching maturity.2
For their part, customers are increasingly express-
ing interest in UBI products to help reduce their We believe the growth of the UBI market will be
insurance costs. This is predicated on the UBI fueled primarily by the following forces:
model’s ability to make insurance more afford-
able for safe drivers, who have traditionally been • Evolution of a new insurance ecosystem.
treated on par with high-risk users. As insurers > Growth of embedded telematics solutions.
move to the next phase of UBI in the enterprise > Connected vehicles.
and adopt new business models, customer delight > Mobility’s impact on UBI.
will be the focus, not the exception, as companies
that embrace the changing landscape of mobility, • Increasing adoption of UBI by carriers and
telematics and an increasingly connected lifestyle customers.
will create new services and experiences for their • Regulatory changes supporting telematics
policyholders. adoption.
UBI: Driving Factors Evolution of a New Insurance Ecosystem
The insurance industry is witnessing a major As the demand for connected cars and lifestyles
shift in how insurance is bought and sold. continues to rise, players in the new ecosystem
Customized products and services are increas- — automakers, insurers, service providers — must
ingly being developed, thanks to technology that work together to benefit from the rich customer
can derive meaningful insights from customer data that is increasingly available. Doing so will
behavior captured at a multitude of touchpoints help all constituents offer value-added services
and through various means (e.g., smartphones, that can potentially drive revenue growth, reduce
connected cars, telematics devices). Auto costs and improve the bottom line. While in-car
U.S. Telematics Sales Growth
Sales of telematics units (OEM installed and Sales of OEM installed telematics systems, by type
aftermarket devices)
35 18
16
30
14 CAGR
25 16.5%
12
Millions
Millions
CAGR
20 10
22.2%
15 8
6
10
4
5 2
0 0
2011 2017 2009 2017
Mobile Device Embedded
Source: IHS iSuppli
Figure 1
cognizant reports 2

3. connectivity will become ubiquitous, car makers Connected Vehicles: A New Paradigm
will offer it primarily through embedded, tethered Vehicles have evolved from mere transporta-
and integrated solutions. The growth in embed- tion mediums to advanced mobile connectivity
ded telematics, demand for connected-car tech- platforms. At the center of this evolution is the
nologies and mobile-based telematics solutions connected-car technology that assists custom-
will create huge imperatives for auto insurers and ers in driving safely, avoiding accidents, lowering
their business models. emissions, benefiting from insurance telematics
and enjoying connected lifestyle services, such
Growth Of Embedded Telematics Solutions as on-demand entertainment, infotainment and
Automotive companies are increasingly embed- concierge services.
ding telematics in vehicles to monitor system fail-
ures and vehicle performance, while also meeting Consumers’ increasing appetite for in-car con-
user demand for wireless connectivity. By the nectivity, along with regulatory mandates for
end of 2018, the proportion of new vehicles sold crash notifications and tracking stolen vehi-
with embedded telematics is likely to reach 80% cles, are the driving forces behind auto makers
of cars on the road in the U.S. and 46% globally, offering connected-car systems (see Figure 3,
according to iSuppli.3 The U.S. is forecast for sig- next page). Declining hardware and connectivity
nificant growth in the sale of telematics systems costs driven by standardization and economies
(see Figure 1, previous page).4 Nearly 4.8 million, of scale are removing the traditional hurdles
or 80% of global plug-in electric vehicles, are that had impeded the growth of connected-car
also expected to come equipped with advanced systems, including high costs, limited consumer
telematics systems by 2017, according to Pike awareness, privacy and safety concerns.
Research.5 Europe is expected to be slightly
ahead of North America and Asia Pacific in the Connected vehicle services enable insurers and
penetration of telematics in new cars shipped by car makers to assist customers when emergen-
2013, according to ABI Research (see Figure 2). cies arise, enabling significant time savings and
optimization of claims processes. In the case of
The growing volume of vehicles with embedded an accident, connected vehicle services allow
devices is expected to drive down device prices, insurers to keep customers apprised of claim
encourage innovation and make it easier for status, close claims faster and gain feedback,
insurers and customers to embrace UBI prod- ultimately leading to increased customer satis-
ucts. Early signals appear to confirm this trend. faction. In addition, these services improve auto
State Farm and GMAC, for example, already offer safety by giving drivers hands-free calling and
their UBI products to subscribers of GM’s OnStar texting capabilities and providing timely naviga-
service, as well as Ford’s Drive Sync program. tion and roadside-assistance services.
Penetration of Telematics
Percentage of new cars shipping with telematics
80
Penetration (%)
60
40
20
2005 2006 2007 2008 2009 2010 2011 2012 2013
Asia-Pacific Europe North America RoW
Source: ABI Research
Figure 2
cognizant reports 3

4. Mobility’s Impact On UBI frequently with customers and offering value-
Rapid advancements in mobile technology, mobile added services to replace sporadic and often
application software and ubiquitous connectiv- transactional services, insurers can build brand
ity are reshaping the telematics-supported UBI loyalty and increase customer retention. In a
market. By 2017, car makers are expected to sell highly competitive market with information-savvy
three times the number of mobile telematics customers, mobility will play an important role in
systems sold in 2009, according to iSuppli.6 marketing, selling and serving new products to
Smartphones already have capabilities such as attract and retain customers, especially younger
GPS and accelerometers — connectivity simi- drivers more prone to using such technologies.
lar to telematics devices — enabling insurers to
use them as viable aftermarket alternatives to Increasing Adoption of UBI by Carriers and
on-board devices. Ptolemus Consulting estimates Customers
that smartphones will soon become the next The number of insurance telematics users is
“onboard unit” of the insurance industry. projected to reach 89 million globally by 2017,
growing at a compound annual growth rate
Frost & Sullivan forecasts smartphone penetra- (CAGR) of 90% from the 1.85 million estimated
tion in North America to grow from 23.9% in in 2010.7 Europe is expected to lead the insurance
2009 to 67.1% percent of subscribers by 2015 telematics market, reaching 44 million users by
(see Figure 4, next page). Smartphones’ ability 2017 from the 1.5 million in 2010 (nearly half of
to wirelessly connect to onboard devices using the entire number of users across the globe).8
Bluetooth is expected to drive UBI growth. This Moreover, telematics-based insurance is expected
will make it easy for insurers to use mobile to cover 100 million vehicles by 2020, generating
telematics applications to track the driving activ- premiums of $60 billion, according to Ptolemus
ity and behaviors of anyone with a smartphone. Consulting.
In addition, using smartphones for insurance Pioneered by carriers such as Progressive almost
telematics solutions will help insurers and car a decade ago, more than half of the leading
makers easily share critical feedback on driving carriers in the UK and U.S. have a telematics
behavior with customers. It will also provide insurance program today.9 In the U.S., Progressive
customers with a transparent and real-time feed- has implemented a UBI product called Snapshot
back mechanism to check their driving behavior in over 40 states. Meanwhile, carriers such as
and vehicle health stats. Innovative insurers can Allstate, Hartford, GMAC, AAA, Travelers, Safeco
offer customers apps and plug-ins to test new and State Farm Insurance are actively conducting
telematics technology. With appropriate incen- their own respective market trials and offerings.
tives, customers can be encouraged to participate
in such trials. Despite all of this activity in the U.S., European
carriers such as Allianz, AXA, Norwich Union
In an industry with little differentiation in prod- and many innovative brokers are ahead,
ucts, and competitors quickly copying innova- having launched UBI programs and installed more
tion, customer service is a major area for achiev- telematics units than in the U.S.10
ing a competitive edge. Using mobility, insurers
can fundamentally transform their engagement Customers are increasingly indicating inter-
with customers. By interacting proactively and 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
cognizant reports 4

5. reward good driving behavior with lower Regulatory Changes Supporting Telematics
premiums. Already, telematics-enabled UBI pro- Adoption
grams for personal auto insurance markets are Many regulations are emerging that are expected
being offered by carriers across North America to drive telematics adoption and thereby the
and Europe. This is critical in markets such as potential for insurers to offer UBI products.
the U.S., where many lower-income drivers For instance, the European Court of Justice’s
find that their insurance premiums exceed Gender Ruling prohibits insurers from using
their car loan repayments. In the UK, insurance gender as a criterion for underwriting. Telemat-
premiums have risen 40% from 2010 to 2011 due ics-based UBI can help carriers by using
to an increase in fraudulent claims. non-gender-related parameters to accurately
assess driver risk and comply with this regula-
Today, more than two million subscribers spread tion. The European Commission’s eCall,16 Russia’s
over five continents subscribe to telematics-sup- ERA-GLONASS17 and Brazil’s SIMRAV18 are all
ported insurance policies, according to Ptolemus mandates that require vehicles to be fitted with
Consulting. The company expects UBI policies to systems to assist drivers in emergencies. Upcom-
exceed 140 million by 2020 globally.11 Within five ing mandates such as Contran 24519 require
years, UBI is expected to account for 20% of all vehicles produced in or imported to Brazil to
vehicles insured in the U.S.,12 and by the end of have GPRS20 vehicle tracking modules to reduce
2011, Europe had 1,200,000 customers using vehicle theft. The enhanced connectivity gained
telematics-based PAYD insurance, with a majority through these on-board devices makes it easier
concentrated in France, Spain, Italy and the UK.13 to assist drivers in an emergency and track and
Frost & Sullivan projects UBI activations in the recover stolen vehicles.
North American market will rise from 137,000 in
2010 to 1.1 million by 2017, a 34.66% CAGR.14 Financial Benefits
For insurers operating in a challenging environ-
In today’s challenging economy, many auto ment, telematics-based UBI presents a valuable
insurance customers are willing to switch car- opportunity to drive down costs through
riers if they are offered discounts on premiums data-driven pricing and pass along discounts
(see Figure 5, next page) and rewards for safe to customers, while enhancing the top line and
driving. Moody’s warns that insurers that delay shoring up the bottom line (see Figure 6, page 7).
offering UBI will lose business to more proactive
players.15 The latter will gain significant competi- • Top-line drivers: Popular UBI products such as
tive advantage in pricing and policy retention by manage-how-you-drive (MHYD)21 and PAYD22
using precision pricing models that use variables allow carriers to offer premium discounts
more tightly correlated to loss costs. to customers based on certain driving
U.S. Smartphone Market
Mobile device connections forecast (North America)
350
Mobile Subscribers (Millions)
300
250 68.9 89.1 117.3 144.3 171.2 193.5 216.6
200
150
100 218.9 202.1 177.9 157.3 136.3 120.7
50 106.3
0
2009 2010 2011 2012 2013 2014 2015
Feature Phones Smartphones
Note: All figures are rounded; the base year is 2009.
Source: Frost & Sullivan
Figure 4
cognizant reports 5

6. parameters and behaviors. Carriers offer • Significant ROI and bottom-line drivers:
discounts of 5% to 10% for just signing up for Claims payout and related expenses consume
UBI programs. Leading insurers claim that by up to 80% of insurers’ premium income. The
using UBI, customers save 10% to 15% on their following are the key UBI-based bottom-line
premiums and that this can increase to 30% drivers:
based on their driving behavior and vehicle
usage. Embracing UBI allows carriers to retain > Reduced claims volume: UBI programs
customers and acquire new ones from compet- encourage safe driving behavior that
itors lagging behind this market trend. results in fewer accidents, helping insur-
ers reduce claims payout and improve the
Additionally, telematics allows insurers to bottom line. According to a Cisco Internet
develop new auxiliary revenue channels, as Business Solutions Group (IBSG) report,
car makers introduce add-on connected-car vehicle connectivity can contribute 30% to
services, such as in-car entertainment, WiFi, 80% of savings in claims and cost contain-
real-time navigation and emergency and road- ment. As insurers further analyze driving
side assistance. Insurers offering additional behavior, greater insights will emerge that
value for the consumer will also offset the ini- will benefit underwriting and claims, as well
tial costs of a UBI initiative. as sales and retention.
> Reduced claims processing costs:
Integration of smartphones with connected- Technologies such as advanced crash
car systems also offers a new source of reve- notification can provide first notice of loss
nue for players in the insurance telematics sup- (FNOL) for insurers to aid in response time
ply chain. By 2016, Juniper Research estimates and triage of claims, generating savings in
92 million vehicles will have smartphone- overall claims expenses. With more accu-
integrated technology. Additionally, new pro- rate accident data available in real time —
tocols such as MirrorLink from the Connected combined with geospatial data on roadways
Car Consortium are expected to make smart- and other factors — insurers can more accu-
phone integration a standard feature on new rately and efficiently settle claims, detect
vehicle models, according to Juniper. Machina fraud and offer immediate assistance, such
Research estimates that by 2020, in-vehi- as emergency response, tow, rental car and
cle connectivity in 90% of new cars will add repairs.
$600 billion in value to the connected life23
industry (see Figure 7, page 8) and $245 billion Insurers can also deliver detailed accident
in revenues from the sale of connected devices information in real-time to service partners
and services such as PAYD auto insurance. that offer roadside assistance and repair
Telematics Incentives
How much of a discount would policyholders require to install a telematics device to monitor their
driving experience?
Over 20% 47%
16%-20% 22%
Discount
11%-15% 17%
6%-10% 11%
1%-5% 2%
0% 10% 20% 30% 40% 50%
Percent of respondents
Source: Deloitte Automobile Consumer Survey 2012
Response base: 1,080 auto policyholders
Figure 5
cognizant reports 6

7. services. This further streamlines claims Insurers have the most to benefit from
processing and enables volume discounts, connected cars and telematics. According
as they can route claims to authorized and to the Cisco IBSG report referenced earlier,
connected service partners. Faster claims vehicle connectivity can save an average
processing results in higher customer of $280 per connected vehicle per year
satisfaction, lower costs for repair and in crash-related value and an additional
towing, and lower risk of disputes and $100 across the insurance value chain (see
claim costs — all of which contribute to the Figure 8, page 9).24 Additionally, vehicle
bottom line with reduced losses, reduced connectivity can prevent 80% of reported
loss expense, reduced severity of claims crashes and reduce 20% to 30% of costs
and reduced fraud. incurred in enforcing traffic 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 efficiency of claims Lower claims processing costs
processing
Event data generated by telematics Enable early detection and Lower fraudulent claims cost
prevention of frauds
Reduction or elimination of towing Reduce downtime, tow charges, Reduce or eliminate associated costs
impound fees and rental car costs
Automated subrogation recovery Establish fault, reduce cycle time Lower claims costs and cost of
in claims processing operations
Driving behavior data availability Enable pricing based on risk profiles Lower customer acquisition costs
Investments in technologies to Upfront and ongoing costs: While UBI entails its own set of costs,
adopt UBI Devices, connectivity, data capture, they are offset by the net benefits vs.
storage, analysis 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 Create safer roads, less accident-
severity and loss of lives prone scenario
Fight vehicle theft Allow efficient tracking and Lower societal expenses
recovery of vehicles
Accurately assess risk for pricing Reward safe drivers with lower Enable affordable insurance
insurance premiums
ENVIRONMENTAL BENEFITS
Drivers Effect Impact
Increase use of congestion-free Reduce fuel consumption Create a cleaner environment
routes and limit vehicle usage
Data on vehicle health statistics Improve vehicle maintenance Reduce Co2 emissions
Source: Cognizant Research Center Analysis
Figure 6
cognizant reports 7

8. > Reduced costs related to fraudulent expenses. Additional fees — including consulting,
claims: Data from the National Insurance integration, analytics, new services, software and
Crime Bureau indicates that more than subscriptions — vary by provider and geography,
10% of P&C claims are fraudulent, adding etc. However, the net benefits of telematics-based
up to over $30 billion annually and leading UBI products outweigh the costs incurred.
to across-the-board increases in premiums
for customers. Using analytics and real- Societal and Environmental Benefits
time information generated by telematics There is growing recognition by carriers,
devices, insurers can weed out fraudulent customers, regulators, environmentalists and
claims. Employing analytics can help insur- consumer and safety advocates that telemat-
ers reduce up to 80% of fraudulent claims, ics-based UBI products offer many monetary,
according to the same Cisco IBSG report. societal and environmental benefits. UBI
provides an incentive for customers to drive
To reap the benefits of UBI, insurers need to safely, thereby reducing accidents, lowering the
invest in telematics devices and infrastructure. severity of accidents and saving lives. Other
This entails upfront and ongoing costs, includ- benefits include enhanced highway transporta-
ing telematics data management, analytics and tion systems, reduced road congestion, reduced
connectivity costs. These costs will vary based costs for recovering stolen vehicles and increased
on whether devices are installed by a third party consumer-oriented services.
or are self-installed, as well as data transmission
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 Benefit
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
Traffic Management $100 billion
Electric Vehicle Charging $75 billion
Building Automation $40 billion
Source: Mobile World Congress
Figure 7
cognizant reports 8

9. UBI also makes insurance more affordable for Challenges
safe drivers, who have traditionally been treated Insurers face significant challenges in implement-
on par with high-risk users. According to the ing telematics-based UBI. They must overcome
AA British Premium Index, the average cost of region-specific and stringent regulations, cus-
car insurance is very high for 17- to 22-year-olds, tomers’ privacy concerns and the need to develop
averaging £2,481. In its study of 10,000 driv- capabilities for managing, mining and analyzing
ers aged 17 to 25 years, Cooperative Insurance complex telematics data, all within a fragmented
Company (a UK-based carrier) found that those telematics ecosystem.
with telematics-based insurance were 20% less
likely to be involved in a car crash, and their • Regulatory issues: In the U.S., each state
average cost of claims was 30% lower than driv- has its own laws and rules for telematics-
ers with traditional insurance. The company is, based UBI. Further, each state has different
therefore, offering safer young drivers discounted requirements covering such products, which
renewal premiums (£790) that are nearly half its creates operational complexities for cross-
average young driver premium (£1,300).25 state carriers. For instance, Illinois requires
carriers to publicize their underwriting
Insurers and car makers are also deploying models, while California limits parameters
gamification to promote safe driving behavior. for product pricing. This hampers insurers’
An example is Nissan’s Leaf model, which uses ability to create competitive products and
the company’s "Eco Mode" software to collect protect their IP. While regulators favor lower
variables such as power usage and speed to premiums for good driving, they do not have
provide feedback to drivers on their driving, a clear stand on raising premiums for bad
using a display located behind the steering wheel. driving, impacting carriers’ competitiveness.
Meanwhile, other insurers are using vital rating • Privacy issues: An early significant hindrance
stats from driving data gathered through apps to UBI adoption, especially in the U.S., is
running on smartphones, connected to vehicles, consumer concern over the types of data
to rate drivers for safe driving and use the score being collected, particularly related to GPS
to offer premium discounts. location, braking patterns and speed. Issues
related to privacy infringement, and how
As drivers become aware of the savings they can insurers will handle this data, are seen as
realize by limiting how much they drive and how potential roadblocks for UBI adoption. Insurers
they drive, they are likely to alter their behav- need to continually allay customer fear over
ior. The result: fewer crashes and reduced traffic how they will protect customer privacy. It will
congestion, fuel consumption and emissions. be a significant challenge for insurers to con-
vince customers and privacy advocates and
Connected-Car Savings
Annual benefits per connected passenger vehicle, by source
New $1,400 Point of interest, location-based services,
Profit Pools $100 car sharing, app store for the road, etc.
Auto OEMs $180
Decreased electronic vehicle architecture
Auto OEMs complexity and cost
$280
& Dealers
Improved service, retention; lower service,
warranty costs
Car Insurance $380
Avoidance of crashes and associated
societal cost
Government $430
Lower fuel usage, emissions, congestion
Source: Cisco IBSG, 2011
Figure 8
cognizant reports 9

10. regulators that consumer information will be to their existing systems and incorporate into
secure and used only as stated. their UBI product design, with the intent of
• Operational issues: Insurers are often moving forward with a UBI offering.
overwhelmed by the storing and analysis of
the massive amounts of data generated by • Challenges with smartphone-based tele-
telematics. Also, UBI projects are extremely matics: The telematics-based insurance eco-
complex in nature, requiring extensive data system is as heterogeneous as the mobile
management and analytics capabilities. ecosystem, and the combination increases
overall complexity. A lack of standardization in
Insurers also face challenges resulting from data and auto platforms makes it challenging
the fragmented telematics ecosystem, in for insurers to integrate mobile devices into
which many auto makers, insurance carriers, their IT infrastructure. Also, mobile devices
telematics service providers and new play- are a potential distraction, as drivers use them
ers are vying for a slice of the market with for calls and texting while driving, which is a
software and connected navigation products. major cause of accidents. Also, insurers need
Insurers may find it difficult to pass on the to authenticate whether the mobile device was
costs of device acquisition, installation and indeed in the vehicle at the time of driving.
operation to customers.
Many factors are beyond the insurer’s con-
Further, the plethora of telematics devices trol, including whether the driver is carrying
available on the market make it difficult for his or her phone while driving, that the device
insurers to determine which device best suits is not being carried by someone else, that
their needs. With patented UBI technologies the smartphone is charged and that relevant
and no publicly available repository of users’ insurance apps are running. As the device is
driving data, insurers face an uphill challenge not tied to the vehicle, insurers will not be able
in quickly starting a UBI program. Most have to offer stolen vehicle services. Smartphone
begun with a pilot program to test and review devices are not as rugged, secure or reliable
devices and data capture, assess the impact as embedded onboard devices, and they open
UBI Ripple Effect
Impact of vehicle connectivity on U.S. insurance value chain
• PAYD: Usage-based insurance
Usage & • MHYD: Driver-behavior-based insurance 10% - 30%
Behavior Premiums
• Vehicle health monitoring and maintenance
• Driver vitals monitoring / distraction alerts
• Safest-route guidance
Crash • ADAS + V2V + V2I: passive and active correction 20% - 35%
Prevention of Crashes
• eCall/ACN reduces severity of injuries and saves lives
• Virtual black box transmits vehicle crash data/video
Fast & Correct • Driver vitals/health data transmitted to first responders 5% - 15%
Response • Reduction of survey and investigation costs Savings
• Fraud prevention and reduction (~80%)
• Stolen vehicle tracking/location
Claims & Cost 30% - 80%
• In-network partners with pre-negotiated rates
Containment Savings
• Pay as you speed
• Virtual violation detection and notification
Connected Law • Automated payment
20% - 30%
Enforcement Savings
$515B Crash Costs
$715B
+$165B Insurance Premiums
Addressable Cost Base
+$35B Traffic Services / Law Enforcement
Source: Cisco IBSG estimates, 2011
Figure 9
cognizant reports 10

11. up greater opportunity for device tampering, use pricing models and managed services. As UBI
lowering insurer trust in the data generated by products and accompanying value-added services
these devices. emerge, the partner should also offer UBI admin-
istration and business process optimization. In
The Road Ahead addition, the partner should have relationships
The insurance industry is undergoing a radi- with car makers to help insurers offer additional
cal makeover, shaped by rapid advancements value-added services for a connected lifestyle.
in technology and consumer behavior and pref-
erences. Forward-looking insurers need to assess Service providers should also have strong
their current business models in light of chang- alliances with telematics platform providers and
ing marketplace and consumer requirements. device manufacturers, as well as deep exper-
Meeting customer needs and serving them well tise in integrating these devices with enterprise
will be key to continued growth. Telematics and systems. As telematics-based UBI is still
mobility have immense potential to help insur- evolving, insurers should choose a partner with
ers by improving the quality and frequency of strong project management experience and the
customer interactions. ability to offer strategic consulting on develop-
ing a roadmap for telematics-based products that
Build Winning Strategies suits current as well as future requirements. (For
As in any highly competitive market, gaining the more details, read our report, The Telematics
first-mover advantage in the telematics arena Advantage: Growth, Retention and Transforma-
will be critical. Proactive insurers should create tional Improvement with Usage-Based Insurance.)
systems that can manage data collected from
telematics-based UBI programs, as well as employ Insurers will also need a service provider that
powerful technologies such as analytics to glean can develop strategies for archiving raw data
useful insights from this data about customers feeds for future analytics, as well as addressing
and their preferences. Easing customer concerns long-term data integration needs. Given the
about privacy issues will aid in improving market competitiveness of the market, partners should
penetration, and providing customers with visibil- also offer innovative solutions that can address
ity into the data captured about them and how it the significant challenges insurers face when
is used will help build much-needed trust. entering this market.
Identify the Right Partners Embracing New Business Models
Identifying the right partner is critical for insur- Increasingly, customers are demanding products
ers planning to enter or strengthen their foothold and services tailored to their needs. Consumers
in the telematics-based UBI market. With data looking to save money in a challenging economy
being central to the success of any UBI program, are finding telematics-based UBI attractive. Insur-
insurers should choose a provider that can offer ers, too, are finding they can no longer afford
end-to-end data solutions, as well as strong to rely on traditional business models, espe-
expertise in aggregating, storing and analyzing cially when disruptive forces such as telematics,
large volumes of data. mobility, the connected car and analytics are
redefining the core of the market. Further,
As the market evolves and consumer preferences advances in technology that make telematics
change, insurers also need solutions that are flex- devices more convenient, affordable and effective
ible and scalable. Service providers should exhibit will drive the growth of telematics in insurance.
deep expertise in the insurance sector and thor-
ough knowledge of the markets in which they Winning insurers will look to continually engage
operate. Insurers should also look for partners customers in innovative ways, offering high-
that can deal with multiple telematics devices quality value-added services to meet their
and data platforms and provide flexible, pay-per- evolving needs.
cognizant reports 11

12. Footnotes
Stephen Brobeck and J. Robert Hunter, “Lower-Income Households and The Auto Insurance
1
Marketplace: Challenges And Opportunities,” Consumer Federation of America, January 2012,
http://www.consumerfed.org/news/450.
2
“How UBI Will Radically Change Insurance Economics,” Ptolemus Consulting, Telematics Update, 2012,
http://us.telematicsupdate.com/fc_tele_evupdatelz/lz.aspx?p1=05900062S2941&CC=&p=1&cID=
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,
http://www.isuppli.com/automotive-infotainment-and-telematics/marketwatch/pages/us-continues-
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, http://m2m.tmcnet.com/topics/m2mevolution/articles/293733-
2017-most-pevs-will-get-show-the-road.htm.
6
Anna Buettner, “U.S. Continues to Lead OEM Telematics Market,” IHS iSuppli, January 2011,
http://www.isuppli.com/automotive-infotainment-and-telematics/marketwatch/pages/us-continues-
to-lead-oem-telematics-market.aspx.
7
“89 Million Insurance Telematics Subscribers Globally by 2017,” ABI Research, February 2012,
http://www.abiresearch.com/press/3845.
8
“Europe to Lead Insurance Telematics Market, with More Than 44 Million Subscribers by 2017,”
ABI Research, June 2012, http://www.abiresearch.com/press/3924.
9
Catherine Stagg-Macey, “Telematics-Based Insurance: Has Its Time Finally Arrived?” Celent,
January 2012, http://www.celent.com/reports/telematics-based-insurance-has-its-time-finally-arrived.
10
Mike Hales, Joe Reifel, Gang Xu and Andrew Beebe, “Insurance Telematics: The Game Changer,”
A.T. Kearney, March 2010, http://www.insurance-telematics.com/topics/insurances/insurance-
telematics-the-game-changer/13-658.htm.
11
“Insurance Telematics,” Ptolemus Consulting, 2012, http://us.telematicsupdate.com/fc_tele_
evupdatelz/lz.aspx?p1=05900062S2941&CC=&p=1&cID=0&cValue=1.
12
“Usage-Based Insurance,” National Association of Insurance Commissioners, June 2012,
http://www.naic.org/cipr_topics/topic_usage_based_insurance.htm.
13
“Insurance Telematics,” Ptolemus Consulting Group, May 2012, http://www.ptolemus.com/insurance-
abstract.
14
“Mileage-Based Premium Drives the Telematics-Enabled Usage-Based Insurance Market,” Frost &
Sullivan, June 2011, http://www.frost.com/prod/servlet/press-release.pag?docid=235476916&
gon11071=ATMI2.
15
“Moody’s: Auto Insurers Offering Usage-Based Products Gain Advantage,” Insurance Telematics,
December 2011, http://www.insurance-telematics.com/topics/insurances/moodys-auto-insurers-
offering-usage-based-products-gain-advantage/13-970.htm.
cognizant reports 12

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 fight high levels of vehicle crime.
19
A law enacted by Brazil to fight 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; http://connectedlife.gsma.com/
overview-and-vision/.
24
“Connected Vehicle Insurance: The Business of Preventing Crashes,” Cisco, April 2011,
http://www.cisco.com/web/about/ac79/docs/mfg/Connected-Vehicles_Insurance.pdf.
25
“Twenty Percent Drop in Car Accidents Thanks to Telematics Insurance,” The Co-operative Banking
Group, April 2012, http://www.co-operativebankinggroup.co.uk/servlet/Satellite?c=Page&cid=1326094
872357&pagename=Corp/Page/tplCorp&currart=1334211464216&currmth=4.
References
• “2012 Global Insurance Outlook,” Deloitte, 2012, http://www.deloitte.com/assets/Dcom-UnitedStates/
Local%20Assets/Documents/FSI/US_FSI_Global%20Insurance%20Outlook%202012_011312.pdf.
• “The Connected Car – Finally Coming True?” Arthur D. Little, 2012, http://www.adlittle.com/downloads/
tx_adlreports/ADL_AMG_2012_Connected_Car.pdf.
• “Connected Car Market Speeding Ahead,” Connected World, June 2012, http://www.connected
worldmag.com/latestNews.aspx?id=NEWS120601060257683.
• “Driving Operational Excellence in Claims Management,” Deloitte, February 2011, http://www.deloitte.
com/assets/Dcom-UnitedStates/Local%20Assets/Documents/FSI/US_FSI_DrivingOperational
ExcellenceInClaimsManagement_022311.pdf.
cognizant reports 13

14. 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.
For more information on usage-based insurance, please contact us at inquiry@cognizant.com.
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