The phenomenon of telematics – wireless technology that letscars connect and communicate with enterprise applications – hasattracted attention among insurance carriers worldwide over thepast couple of years. According to a research report from Berg Insight, shipments of OEM embedded telematics systemsworldwide are forecasted to grow from 8.4 million units in 2013 to54.5 million units in 2020. Additionally, the number of cars soldworldwide equipped with handset-based telematics capabilities willgrow from 7.0 million in 2013 to 68.5 million in 2020.

In fact, this was a huge point of discussion at last month'sIntelligent Transport Society event in Detroit. General Motorsannounced the company's plans to launch a hands-free automateddriving system and Wi-Fi-enabled vehicle-to-vehicle communicationssystem by 2016 in its Cadillac CTS sedans. Calling it the "supercruise" system, the technology is aimed to help drivers avoidcrashes without the need for their own intervention.

As the U.S. Department of Transportation has said it isconsidering putting forth legislation that would requirevehicle-to-vehicle communications technology to be implemented by2016, automakers such as Toyota, Volkswagen and Ford are alsoactively developing similar systems. But telematics has severalother benefits outside of safety.

There are at least four ways in which connected cars will changethe game for insurance carriers – or put them out of itentirely:

PREMIUMS:Premium-setting is perhaps the most discussed area by insurers. Bytransmitting data related to vehicle use and driving behavior, thistechnology will allow insurers to price their policies moreaccurately as the precise performance of the vehicle and theindividual driver can be measured and a premium calculatedaccordingly. Carriers will be able to select the best risks – andgroups such as younger drivers could be offered a more affordablecover based on monitored usage.

According to U.K. premium indices, car insurance premiumshave risen for the first time since 2011 in the country, signalingthat cheaper coverage rates (the average cost of cover wasdecreased by about $440 over the past three years) may be a thingof the past. Therefore, usage-based insurance will present awelcomed solution to combating these inevitable raises.

CLAIMS: Connectedcars will also transform the processing and management of claims.Insurers will be automatically notified as soon as an accidentoccurs with sufficient detail to allow for an accurate estimationof who is at fault and, consequently, facilitate more rapidsettlement. This benefit has been discussed far less than thepremium setting mentioned above, but it could result in aremarkable reduction of insurers' overall costs.

On top of cost savings, the National Highway Traffic SafetyAdministration (NHTSA) predicts that vehicle-to-vehicle safetytechnology (i.e. left turn assist and intersection movement assist)could prevent anywhere from 25,000 to 592,000 crashes per year.

FRAUD: Technologythat provides a constant stream of actionable information about thecondition and use of a vehicle will give insurers a betteropportunity for reducing fraud and other losses on policies they'veunderwritten. With the Associationof British Insurers reporting that the cost ofinsurance fraud topped $1.6 billion for the first time in 2013,telematics could make a decisive difference.

CUSTOMER SERVICE:Telematics also has the capability to transform customers'perception of car insurance. Rather than simply buying a fixedpolicy to cover a generic risk, drivers will be able to get apersonalized cover that reflects their individual driving habitsand track record. Insurance will then become a service-basedconcept, rather than a policy-based commodity – which will make iteven more attractive to safe drivers who present the lowest riskprofile and the most profitable business.

Realizing any of the above advantages will depend on one thing:the insurers' ability to analyze, interpret and convert the massiveamounts of data from connected cars into actionable insights.Without that ability, the data load will work against thisprocess.

If insurers allow themselves to become too bogged down in data,premiums will become too expensive, the claims process will becometoo inefficient and they will be more at risk from fraud. All ofthese factors lead to a loss of market position as more agilecarriers will use these new-found data assets to innovate andcompete more effectively.

Sean Allen is Vice President of Sales with XchangingInsurance Services, North America