Reflecting on the Octo Telematics acquisition

Date: Sunday February 9, 2014

Octo Telematics has been acquired by Renova for €408 million ($555m), but is this a true reflection of the Usage Based Insurance market, or does the transaction illustrates a shift in how UBI is being deployed?

Octo Telematics’ hold on the UBI market amounts to more than 50% of the vehicles using telematics insurance worldwide. Octo, working with Unipol, was the first service provider in this market to define and deliver the first sustainable insurance telematics model. Working with more than 40 insurance carriers, Octo still dominates the UBI service provision sector, because for years the company was the only supplier to truly focus on insurance customers. We estimate that they equip more than 1,5 million vehicles today.

This standing in the European market, particularly in Italy, is the reason behind the relative premium transaction price, especially if compared to Octo’s €90 million euro revenue.

The commodatum model has been the source of Octo’s success. The leasing mechanism, allowing insurers to pay for the device slowly across the whole policy period had a dramatic effect when the device and installation cost were above €200 per vehicle. Today, however, Octo has also lost customers, partly because the commodatum model gave Octo complete ownership of the solution and the data, to which some insurers objected.

Octo Telematics’ lead has been maintained thanks to its black box-based insurance telematics solutions. This dependence on the professionally installed device has proven risky. For low-premium markets, insurers had to look at alternative solutions and, as Groupama’s Amaguiz did, switch their devices to OBD dongles. Octo’s US efforts were also impaired by their initial lack of OBD solution. They now work very closely with Danlaw.

A year after Octo was put up for sale, Octo’s purchase is, however, in line with the market. Verizon paid $612 million for Hughes Telematics, another telematics service provider with very different strengths in consumer vehicle connected services. The market for UBI service provision is now a lot more crowded, not only with successful pure players such as Wunelli, Cobra and Baseline, but also with car manufacturers and wireless operators entering the market.

The strength of the company is its ability to enter new markets with low cost, proven devices and adapted consumer propositions. Russia and the East European UBI markets are as yet untouched, and the technical and financial strength of Renova will be a significant enabling factor for Octo to engage with insurers there, and Octo’s existing partnership with Cesar Satellite will certainly accelerate that.

Octo brings the technology, experience and brand where Cesar Satellite brings market understanding, customer relationships and installation infrastructure. That combined force will enable them to access the right C-Level Network, a determinant success factor in Russia.

PTOLEMUS believes that the acquisition validates the UBI / telematics proposition, providing the market with clear signs of the possibility of blue chip suppliers to the industry. We expect the market will continue to grow and also to mature – UBI isn’t an experiment anymore.