IoT Explained
07 July 2025
Reading Time: 5 mins
Eseye
IoT Hardware and Connectivity Specialists
LinkedInThe automotive insurance industry is being rapidly transformed by a combination of sophisticated Internet of Things (IoT) and telematics capabilities that enable personalized risk assessment and pricing, as well as streamlining the claims process, including settlements and investigations.
The market opportunity is huge. According to Berg Insight there were around 342 million vehicles on the road in Europe in 2022, and 310 million in North America, with passenger cars and light trucks representing the vast majority in both markets.
Some kind of car insurance is mandatory in all these markets, and in developed countries there are different categories of insurance for a wide variety of unforeseen events. Gross written premiums for motor vehicles in Europe hit €146.2bn in 2023, and more than double that in North America ($381.3bn) in the same year.
What are IoT and telematics in auto insurance?
Telematics combines telecommunications and informatics, referring to the collection of information – in this case from vehicles – via connected networks.
Telematics merges onboard vehicle software and sensor hardware systems with wireless connectivity to enable remote monitoring, diagnostics, tracking, and management of the vehicle. While telematics can be used in the context of fleet management to deliver real-time information on vehicle location, speed, fuel consumption, maintenance and parts failure, in the context of insurance, hundreds of onboard sensors are enabled by cloud computing to provide insights into driver behavior and safety.
This IoT data can be used by insurance providers and underwriters to offer highly customized insurance premiums based on actual driving habits, as well as to incentivize safer driving through lower premiums for consistently responsible drivers.
Applications of telematics in car insurance
Usage-Based Insurance (UBI)
UBI premiums are calculated based on how a vehicle is driven and how much a vehicle is used. This can result in beneficial rates for low-mileage drivers or those who demonstrate safe driving practices and give insurers greater differentiation in their offerings.
Usage or behaviour-based pricing models are sometimes referred to as Pay-As-You-Drive (PAYD), Pay-How-You-Drive (PHYD) and Manage-How-You-Drive (MHYD).
Personalized risk assessment
IoT sensors embedded in the car, added aftermarket, or even making use of the driver’s smartphone via an app, can generate very granular datasets that can be used to tweak insurance premiums and policies or create a risk profile based on driver behavior. Data such as acceleration, speed, braking, and even geographic location can all be leveraged to make decisions.
Incentivizing safe driving
The same sensors can also be used to give real-time feedback to drivers, either via an in-car dashboard or smartphone app, to help them manage their behavior and keep it consistent. As well as potentially reducing accidents caused by dangerous driving, positive reinforcement can translate into lower premiums for consistently safe driving behaviour.
Fraud detection and prevention
If an investigation is triggered as part of the claims process, the IoT sensor logs and telematics data can make it much easier for an analyst to detect fraudulent claims. Was the vehicle where the driver claims it was? What speed was it travelling at? How was the driver behaving?
Optimized claims handling
As well as assisting with an investigation, telematics data can improve or streamline the end-to-end claims process by quickly providing insurers with accurate information about accidents.
Combining AI and IoT for smarter underwriting and fraud detection
The data generated by telematics can be combined with AI to help automate many parts of the claims process, helping insurers work at scale. Visual AI can also ingest photos of a damaged vehicle to assess the extent of the damage, the claim’s value, and compare this information with telematics data to establish a chain of events.
When combined with historical data, AI can also assist in risk reduction, such as identifying ‘risky’ drivers and potentially reducing the number of claims pay-outs that must be made by the insurance company.
Challenges and adoption of IoT insurance telematics
Despite its potential, the insurance telematics market has stagnated somewhat in the past years after a couple of years of growth, although the market is still projected to grow significantly long-term.
For years, one of the biggest obstacles to vehicle telematics was incompatibility between systems. But recently, prominent automotive manufacturers have made efforts to expand their existing telematics offerings, making them compatible with different vehicle models. The availability of plug-and-play units also means telematics modules can be added to other vehicle brands after-market.
With technological hurdles on the way to being overcome, another reason adoption of telematics in insurance remains relatively low is due to privacy concerns and regulatory hurdles.
Privacy concerns and consent for data usage are significant issues, with several court cases bringing to light concerns over the creation of data points and who owns and/or processes that data, resulting in calls for greater transparency in how data is collected and used.
There is also the perception of telematics as “spying”, which can discourage adoption because insurers could have access to a constant historical archive of driver behavior. However, the insurance industry argues that the real issue here is ensuring an attractive value proposition for consumers. Because when drivers see tangible benefits, such as policy discounts, concerns diminish.
The opportunity to move from passive to predictive auto insurance
Europe and North America represent the vast majority of all insurance telematics programs and active policies. Berg Insight estimates that the total number of insurance telematics policies in Europe is due to grow from 13 million at the end of 2023 to 17.6 million by 2028. In North America, the total number of insurance telematics policies is set to grow from 17.9 million to 26.3 million over the same period.
As a result, the Europe and North American markets are expected to reach 43.9 million insurance telematics policies by 2028.
In terms of implementation, the top three insurers have recently introduced smartphone-based solutions for UBI applications, highlighting a trend to supplement or replace the previously used telematics dongles.
Although the focus has historically been on hardware telematics solutions, insurers are shifting to focus more on app-based solutions to achieve greater penetration. Although a growing number of cars on the road with embedded telematics are organically increasing the penetration rate.
For consumers, the benefits of insurance telematics and connected cars are compelling, including more attractive pricing models, safer roads and streamlined claims experiences.
For insurers, the adoption of IoT technology signals a new era of risk management, allowing insurers to not only respond to risks more effectively and efficiently but also to actively mitigate them.
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As insurance telematics continues to reshape the industry landscape, embracing advanced connectivity solutions like Eseye’s AnyNet+ eSIM ensures that both insurers and consumers remain at the forefront of innovation, security, and seamless global coverage.
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