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Telematics could be “the most important factor in insurance premium determination”

TU talks to Rakesh Mishra, vice president of product management at Farmers Insurance

Rakesh Mishra is a pioneer of usage-based insurance (UBI) products in the US personal auto insurance market. His collaboration with product development engineers led to the launch of the first telematics-driven, usage-based auto insurance product in 1998. Among his current priorities is the design of a cost-effective business model to implement pay-as-you-drive insurance products.

What does Farmers Insurance do?

We are one of the largest companies in property and casualty insurance in the US.

How important telematics in the insurance market space?

Very important. It has the potential to be the most important factor in insurance premium determination. Insurance companies have unending energy to do something quickly in the UBI space. Regulators like the ‘go green’ aspect, and telematics device manufacturers are seriously looking at the insurance market for the next big growth opportunity. But there are still some unanswered questions.

How can the telematics industry address the key concerns insurance carriers have?

The cost of devices is coming down, but insurance carriers want to pay nothing for them. What business model will accomplish that? UBI needs to be device agnostic. All the insurance carriers need to be certain of is that it works well for a UBI product. Also, insurance carriers don’t want to be in the business of selling the device to the customer or installing and maintaining the device, so device service and maintenance are important. Finally, data is plentiful, information is useful, but insight is rare.

Which trends will impact the industry the most in the coming years and why?

Reductions in telematics devices costs, reductions in data communication and storage costs, and lack of clear understanding of how to make telematics work in insurance are all issues that need to be addressed. There is a tremendous amount of revenue growth potential and a vast variety of players in the market, but no clear leader. There are so many new entrants—from new device manufacturers to actuarial firms to data storage and services vendors—but there is no clear strategy and no clear winner. Everybody wants a piece of the market but no one has figured out how. One or two players will emerge as having cracked the nut in figuring out how to make a mass-consumed insurance product.

Rakesh Mishra will present on telematics and insurance at Telematics Update’s Insurance Telematics USA 2010 on September 13-14 in Chicago, the first show dedicated to Insurance Telematics.

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