Authored by Aditya Dadia, Founder of Alwrite
The insurance sector has been making rapid strides due to the disruption caused by adopting the latest technologies. Besides bridging the gap between uninsured and insured, the latest technologies have ensured that highly reliable procedures have replaced the labour-intensive and error-prone conventional methods.
One such development could be the adoption of telematics, which could potentially fix some of the chronic challenges the industry (specifically the commercial insurance domain) has faced over the past few decades. The underlying technology enables data-driven insights and real-time information collection (from vehicles and other assets), allowing insurers to assess risks more accurately and offer personalized solutions to business organizations.
As commercial insurers strive to enhance efficiency and reduce losses, telematics emerges as a game-changer in the Indian market.
Understanding Telematics in Commercial Insurance
Telematics is critical for the insurance sector as it integrates telecommunication and informatics. In an industry where risk management and valuation are two of the most critical components in evaluating premiums and processing claims, telematics will change how things are currently operated.
Around 25% of all new commercial vehicle insurance policies in India incorporate telematics, which further influences other logistics, supply chain management, and goods-in-transit insurance policies. It is estimated that using telematics can help reduce commercial insurance premiums (particularly in industries like logistics, manufacturing, and retail) by almost 20%.
The technology is critical because it helps analyse risk metrics effectively, and the premiums are derived on a data-driven technique rather than a simple hypothesis. It supports effective risk management and cost control, leading to more competitive premiums and proactive loss prevention.
Challenges in the Current Commercial Insurance Landscape
The current challenges are deeply rooted in the conventional methods adopted by insurance companies offering businesses a wide range of commercial insurance solutions. The issues include underwriting complexities, fraud, and the absence of real-time data.
For instance, underwriting commercial policies can be quite complex because of the diverse risk profiles of businesses. Hence, risk management is quite challenging without the latest tools and techniques. Further, frauds involving exaggerated claims and misrepresentation are also quite common.
An overall lack of data on an enterprise's business, operations, logistics, and inventory hampers the insurers' ability to offer dynamic, data-driven policies. It eventually leads to poor coverage, which might not be enough to meet the specific business requirements.
How Telematics is Transforming Commercial Insurance
There are several ways through which telematics has already demonstrated its impact on the commercial insurance sector. Here are a few critical points:
1. Real-Time Risk Assessment: Telematics integrates closely with business operations, and it is easy to evaluate risks through tracking equipment, monitoring building systems, and overseeing supply chains. With better risk assessment, the premiums are calculated efficiently.
2. Customized Insurance Offerings: Insurers can provide customized and tailor-made solutions that meet distinct business requirements. For instance, manufacturers can get coverage that reflects the operational risks of their machinery.
3. Better Claims Processing: As telematics provide precise information about any incident, the chances of fraud (through claims exaggeration) and delays in processing such claims can be reduced.
Future Outlook: Telematics in the Insurance Sector
The overall impact of digitalization in the insurance sector is already felt with increased coverage and reduced claim processing times (and disputes). The effect of telematics in the commercial vehicles segment has already been witnessed, as claims frequencies have reduced by almost 15%.
As businesses across industries adopt telematics for real-time monitoring and risk management, insurers will likely see a surge in demand for customized policies that leverage this technology. With regulators such as IRDAI pushing the need for adopting the latest technologies and innovations in the insurance sector and the market for connected technologies also expanding, the overall role of telematics in the insurance sector can be quite critical, and it could be a massive game-changer in the commercial insurance field.
Summing Up
The introduction of emerging and latest technologies has disrupted the insurance sector. The impact has been primarily positive as the insurance coverage has increased and the disputes between parties have decreased.
With telematics, some of the longstanding issues in commercial and general insurance will be resolved, thereby enhancing the effectiveness of the insurance companies. Further, telematics, in an interconnected world, will help businesses save critical time in claims processing, and insurance costs will also be reduced.
Telematics is set to revolutionize the commercial insurance landscape in India by enabling more precise risk assessment, personalized coverage, and streamlined claims processing.
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