Should insurers buy their Telematics Service Provider to survive in the AI era?

With the recent investment by Allianz and State Farm – alongside TPG Global – in Cambridge Mobile Telematics (CMT), all insurance companies in the world will start asking themselves whether they should acquire, or at least control, their telematics supplier.

This is particularly important because CMT has become the world’s largest insurance Telematics Service Provider (TSP). And there are not so many other large scale players.

Beyond CMT, there are only 7 sizeable, independent, TSPs with 500,000 or more equipped personal line policyholders in the world, namely FairConnect, IMS, Pioneer, OCTO, Targa Telematics, The Floow and T-Map.

There are a few other significant providers but generally in the hands of an insurance company. For example, Arity, owned by Allstate; Jeniot, owned by Generali Group and UnipolTech, owned by Unipol Group.

As we analysed in our latest UBI Global Study, telematics, which equips more than 60 million drivers globally, is becoming a key differentiator but also a critical enabler of generative AI.

TSPs collect the data that insurers can compare with actual claims losses, giving them information on the risk of their claiming customers but also on the driving and other contextual factors that lead to claims in the first place.

In other words, all insurer AI models can be fed with real world telematics-generated data and algorithms: pricing model, claims loss estimation models, etc., as shown in the figure below.

So to win in the AI game, do insurance carriers need to have telematics data?

In our view, surely yes because an AI model is only as good as the data that it has been trained on.

Now does that mean that insurers need to own the company that collect this data for them?
In theory, no, because these TSPs can develop models that leverage all the data they have access to without exposing the specific dataset of a given customer to another one.

However, there are – at least – 3 situations where this could be the case:

1. The lack of TSP supply could be seen as problematic by other insurers;
2. Even if there are other TSPs, if the largest ones are owned by a few carriers, other insurers could struggle to have models that are as predictive of the risks;
3. If underwriters believe it is a key differentiator to have an end-to-end control of the data management process to build the most predictive analytics and AI models.

As CMT is the largest TSP, carriers other than Allianz and State Farm could feel vulnerable. While neither of the two insurers own a controlling stake, this transaction could help them acquire the mobile UBI vendor later on. There is also the fear that as shareholders of the TSP, they could have access to priviledged information on its customers.

Also in some regions, underwriters could feel that they run out of alternatives.
For example, in the US personal line market, CMT has the largest market share, serving in particular Progressive and State Farm. And Arity, the number 2, is controlled by Allstate.
In Italy, 3/4 of the data is generated by « captive TSPs » belonging to insurance companies!

All this means that in certain markets, insurers could feel that in front of this « prisoner’s dilemma », they should acquire a controlling stake in a telematics vendor.

In the long run, is vertical integration of telematics by insurance groups a recipe for success?

While there are clear cases of success, such as Unipol and Allstate, there have also been failures, notably Direct Line in the UK and Allianz in Italy.
In a market where there is ample supply of credible telematics solutions, this may not be necessary. However, it is also true that by building or acquiring telematics operations, insurers can keep their services for themselves and benefit from a valuable advantage.

After all, if data is the new oil, it may be a good idea to control (the) refineries, as the current period is proving!

If you wish to better understand the insurance telematics market landscape, our latest UBI Global Study analyses it globally, in each region and each country.

To obtain more information, please contact Frederic Bruneteau.

Article written by Frederic Bruneteau, under PTOLEMUS copyright