Usage-based-Insurance to fuel telematics

In India, where telematics is in a nascent stage, the market is estimated to cross $100 million in the next 2-3 years with vehicle telematics, driven by cellular M2M connections, taking lead over metering infrastructure and remote monitoring and control

By Nandita Singh

Connected Office. Connected Home. Connected Car... Life is turning digital... at a fast clip. The blending of IT and wireless telecommunications technology is driving it. Referred to as Machine-to Machine (M2M) communication or telematics, the technology is finding applications that are bringing huge efficiencies while turning the process or the service addressable in real- time and creating market opportunities for businesses.

The market size for telematics is projected to be $30 billion globally, over the next 3-4 years, according to industry estimates. India, where it is in a nascent stage, it is estimated to cross $100 million in the same time frame with vehicle telematics, driven by cellular M2M connections, taking lead over metering infrastructure and remote monitoring and control.

A recent report by analyst firm, ABI Research says, OEM telematics and aftermarket telematics will be dominant sectors for cellular machine-to-machine (M2M) connections, growing to over 40 percent connection share. This is in a market where cellular M2M connections are set to grow by double-digits regardless of application category, globally. “Vehicles are being targeted on two fronts for cellular connectivity. OEMs are embedding cellular to both add safety, convenience and infotainment features, and also improve maintainability and more importantly to avoid recalls,” says Dan Shey, practice director at ABI Research. The other front is held by insurance companies that are implementing cellular connectivity typically as an aftermarket product for user-based insurance and stolen vehicle tracking services, according to the M2M Services and Modules Market Research, a global report from ABI.

Cellular connections enable value for both markets, which are still relatively under-penetrated. And GSM standard 2G and 3G connections, it is expected, will maintain the lion’s share of connections through 2019 as LTE single mode devices are yet to claim market share, globally, according to the report.

However, India is yet to get on the curve and pick up speed – which is not to say that nothing is happening on the front. In 2013, India’s first telematics smartphone app was launched for Mahindra Reva e2o, the connected electric car. The app allows drivers of the e2o to remotely access a range of features and functions such as checking the battery charge, remotely control air-conditioning, lock or unlock doors and find the nearest charging station via the smartphone. The app also automatically alerts its owner if the parking break is off or a door is left unlocked. An e2o car can be configured with two such smartphones. This secure connectivity between the vehicle and the central application is being provided by Vodafone communication technologies and M2M platform.

Globally, over the next five years, a ten-fold increase is projected in the number of new cars equipped with factory-fitted mobile connectivity focused on safety and security features, as well as infotainment and navigation services. And if associated regulations keep up, 100% of new vehicles will be mandated to have these features in India too. “Regulatory is the major driver for this market, globally,” says Cyril Zeller, VP-Global Telematics at Telit Wireless Solutions, a company that enables global M2M by integrating long range cellular technologies into its M2M module transforming it from a component to a solution. Telit delivers its services with connectivity, cloud solutions and application enablement platform (AEP) through its business unit m2mAIR.

The company that began functioning in 1986, as an engineering company that provided R&D services to multinational telecos, began manufacturing and marketing its modules under the Telit brand in 1997. Telit made a strategic move from cellular M2M to wireless M2M in 2008 integrating both satellite and short-range RF technologies in its product portfolio, making it a significant player set to go wherever its customers’ want.

More recently, in April 2014 after acquiring the Automotive Telematics On-board Unit Platform (ATOP) from Nasdaq-listed Netherlands company NXP Semiconductors, a new business unit Telit Automotive Solutions was launched to focus on Automotive OEM and tier-one markets. The company started India operations in 2011 and has been focused on growing the Telit Wireless partner ecosystem. “However, high usage cost in this price sensitive market and lack of awareness among end users is restricting vehicle telematics growth,” says Ashish Gulati, Country Head for India at Telit Wireless.

So, what will it take for India to ride telematics?

Policy will be the major driver. Government’s initiative of supporting 100% foreign direct investment in manufacturing of telematics devices will help drive down the hardware prices. “High adoption cost is a major deterrent,” says Gulati. Also, State-run transport vehicles should take the lead. GPS-enabled government run vehicles for departments like police and tranportation itself can drive the change, according to Gulati of Telit, which works closely with OEMs for both passenger and commercial vehicles.

A number of companies have been involved in developing/ deploying/ servicing telematics-based solutions for their global clients from India. MFormation, a mobile device management company, has its development center in Bangalore, in India since 2005. Its customer base spanning across OEMs, MVNOs (Mobile Virtual Network Operators) and carrier companies extends across geographies such as Europe, North America, Latin America and Japan. The company with over 500 million devices under management offers a comprehensive set of device interoperability testing, device certification capabilities, via programs branded Midas Device Certification programs to operators as well as OEMs. “Machine-to-Machine device management, automatic device detection and configuration, mobile service enablement and smart customer interactions is our forte,” says Amit Shah VP of product development & engineering at MFormation. He has been instrumental in setting up the India development center for the company.

In the last 5-6 years a number of enterpreneurs in India too have jumped in the telematics fray and are looking at the domestic market, contributing their might in putting India on the curve.

Delhi-based Sway Techno Solutions, a barely 5-year-old start-up led by its CEO Atul K Gangwar manufactures and provides GPS and GSM-based fleet management and asset tracking solutions. Its fleet mangement and asset tracking solution Vyom has been in the market for about 18 months. Vyom is a vertical-customizable solution that runs on a cloud-based platform and is available with FOTA (firmware over the air) upgrade capability. There are a number of start-ups like Sway that have mushroomed in the last 5-6 years. Many of these are experimenting with a variety of applications. However, vehicle telematics and asset tracking being the most mature segment remains the low hanging fruit. Another Delhi company, Calixto has a container tracking or a logistics solution -- called Calixto Smart Tracker -- leveraging on location intelligence for the business process.

Usage-based-Insurance, the game changer

While GPS devices are becoming a mandatory requirement in public transport vehicles in India the game changer will be the intelligent black box (dashboard port) if mandated in every vehicle. But adoption will pick up scale only when User-Based-Insurance kicks-off for automobiles. As far as use cases go, “Telematics-based insurance or “Pay How You Drive” insurance model is based on customizing the premium amounts to suit the vehicle driver’s habits and behavior on road. This is tracked through installing a device into the car, which enables insurance companies to track and monitor the actual usage of vehicle driving style like fast braking or sudden acceleration, to ascertain the probable risk required to be mitigated,” says Ajay Bimbhet, MD & CEO at Royal Sundaram Alliance Insurance Company.

This allows the insurance company to offer a suitable motor insurance policy to the vehicle driver, which would commensurate with his/her vehicle usage and driving style. This is not only beneficial for the consumers as they get to pay-as-they-use in terms of policy premiums; but more importantly it also benefits general insurance companies to ascertain and analyze their asset-liability profiles in a better way. In addition, telematics devices also enable insurers to trace the location of vehicles, which are stolen, thereby enable insurers control their loss ratio.

A number of insurance companies including Royal Sundaram have been honing the idea on a pilot scale, but the commercial adoption of the technology and products will unfold only in a year or two, subject to the industry’s ability to mitigate key challenges.

The first challenge is to ensure affordability in the light of high cost of device. While the customer would need to be aware of the inherent advantages associated with investing into such technology, for the insurance company, the challenge would be to maintain its profitability in light of recurring costs to track the reports derived from such device.

A bigger challenge, however, is in analyzing the driving habits in a country where a car is used as family car. This means that any one in the family with valid driving license can drive the vehicle. As multiple people would drive the vehicle, it would become difficult to analyse the driving habit of one particular driver and therefore would defeat the purpose of “pay-how-you-drive” insurance.

“Besides, the telematics ‘BlackBox’ has running cost (in terms of the sim card - sms/data charges) and given the relative cost the investment may not currently justify the respective gain in business. The accuracy of the data is also a concern, which can be obtained only if the telecom network has good coverage at all places at all times,” highlights Mukesh Kumar, Executive Director, HDFC ERGO General Insurance Company.

India is a couple of years behind other countries in the world when it comes to telematics insurance mainly due to the fact that the “Own Damage” component of the premium is very low and also the customers in India may not be very receptive to the idea of infringement into their privacy. “Though still far from making a commercial offering, Bajaj Allianz has partnered with a reputed vehicle manufacturer in India and certain vehicle models of that manufacturer are fitted with telematics device,” informs Vijay Kumar, Chief Technical Officer- Motor Insurance, Bajaj Allianz General Insurance.

While insurance industry plays catch up M2M remains an inspiring technology to pursue not just for the large IT services companies in India but also for Apple, Google, the automobile brands, their OEMs as well as start-ups like Bangalore-based Savari Networks which is focused on a solution that saves a daily commuter from everyday traffic hassles.

(Inputs: Sanjeeb Sahoo)