Verizon's Hughes Buy Shows Opportunity in Telematics

News broke today that Verizon would buy Hughes Telematics, which manufactures connected car services, including the In-Drive device that powers State Farm's usage-based insurance program, Drive Safe & Save.

Reuters reports that the $612 million price paid by Verizon is a whopping 176% premium per share of Hughes. That sounds like a lot, but it should be a smart buy if telematics-powered usage-based insurance is on the rise.

I just wrapped a story on the five reasons this is the year for usage-based insurance. One of the reasons cited by industry observers is the maturation of the vendor market in insurance-focused telematics. Hughes is just one of several companies that bundle telematics devices, data management analytics and more into a packaged usage-based insurance program that insurance companies can buy, rather than build.

Tom Kavanaugh, director in the financial services practice at PwC, told me that this not only helps large insurers, but also allows small companies the opportunity to provide a product on par with those large companies. As he puts it:

As the space becomes more evolved and there's clearly become examples of success in the space, the ecosystem evolves. What we've seen over the past couple years is a proliferation of a whole system of vendors that bring a whole bunch of solutions to the table. Encompassing the data management and analytics will absolutely help to accelerate some of the efforts, especially of your smaller regional players who don't have the capital resources.

More insurers offering usage-based insurance means more drivers enrolled in these types of programs — and a larger awareness of the opportunity among consumers. These moves by State Farm, for example, shows how intense the competition is following Progressive's aggressive move into the space. Be on the lookout for more on this point the other four reasons when our next print issue comes out in a couple weeks.

Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio