PREMIUMS: Premium-setting is perhaps the most discussed area by insurers. By transmitting data related to vehicle use and driving behavior, this technology will allow insurers to price their policies more accurately as the precise performance of the vehicle and the individual driver can be measured and a premium calculated accordingly. Carriers will be able to select the best risks – and groups such as younger drivers could be offered a more affordable cover based on monitored usage.

According to U.K. premium indices, car insurance premiums have risen for the first time since 2011 in the country, signaling that cheaper coverage rates (the average cost of cover was decreased by about $440 over the past three years) may be a thing of the past. Therefore, usage-based insurance will present a welcomed solution to combating these inevitable raises.

CLAIMS: Connected cars will also transform the processing and management of claims. Insurers will be automatically notified as soon as an accident occurs with sufficient detail to allow for an accurate estimation of who is at fault and, consequently, facilitate more rapid settlement. This benefit has been discussed far less than the premium setting mentioned above, but it could result in a remarkable reduction of insurers' overall costs.

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

FRAUD: Technology that provides a constant stream of actionable information about the condition and use of a vehicle will give insurers a better opportunity for reducing fraud and other losses on policies they've underwritten. With the Association of British Insurers reporting that the cost of insurance 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 fixed policy to cover a generic risk, drivers will be able to get a personalized cover that reflects their individual driving habits and track record. Insurance will then become a service-based concept, rather than a policy-based commodity – which will make it even more attractive to safe drivers who present the lowest risk profile 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 massive amounts of data from connected cars into actionable insights. Without that ability, the data load will work against this process.

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

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