Connected cars offer huge opportunities to value chain players, including insurance companies. Data collected from vehicles can be used by insurers in a number of ways to improve their top and bottom lines, and also increase customer satisfaction. However, to avail this opportunity fully, insurance companies will need to be proactive, choose their strategic and investment options wisely, make relevant ecosystem partnerships and allay user concerns.
Connected Car — The New Focus
The development of in-car technology has mainly been focused on improving in-car features and performance up until now. However, with the availability of advanced communication technology, experts are now aiming to connect the car externally as well, to various information points/nodes/networks, basis which a lot of additional benefits can be provided to the vehicle user, whether it be in terms of safety, navigation, entertainment, etc. This ‘connected car’ market segment offers huge opportunities — according to McKinsey, the global market for connectivity components and services is expected to increase to €170 billion by 2020 from just €30 billion today.
The advent of connected cars is expected to, and is in fact, already disrupting the automotive value chain and creating a new ecosystem which is expected to lead to a number of opportunities for a wide variety of players. It is no wonder then, that a number of players- automakers, telecommunications firms, sensor and chip manufacturers, digital and technology companies, as well as insurance companies, are lining up to get a slice of the pie.
Insurance Companies- Opportunities Galore
Just like other players in the value chain, car insurance companies are also facing many opportunities (as well as challenges) due to the advent of connected cars. The most important benefit for these companies is being derived from the availability of real time data being collected from vehicles, with data such as hard acceleration or braking frequency, amount of distance covered, time of journey, harsh cornering, speed, etc. being collected with the help of in-car sensors or mobile apps. This data is being used by insurers, for example, to offer individualized premium plans to their users based on their specific driving behavior (also known as usage-based insurance or UBI).
Data can also be used by insurers to provide benefits including offering preventive maintenance and other value added suggestions to users, better detection of fraudulent claims, better customer selection(focus on less risky, more loyal customers) and segmentation, creating products with improved risk-pricing & rating capabilities, creating more effective marketing campaigns, , improving up/cross selling, etc. Analysis of telematics data can even help insurers in easier car crash liability detection, as such data can be helpful in understanding all car crash aspects better, including impact force, whiplash, soft tissue injury, etc.
However, along with these opportunities, insurers are facing some challenges as well. Connected cars and the enormous data available makes data collectors and analyzers more important in the value chain than ever before . This is a challenge for insurers as a new player has been introduced in the value chain, and also insurers need to develop extensive data capabilites which they may not have had before. So insurers need to develop or partner for such capabilities.
Apart from this, insurers must overcome regulatory hurdles (for example, different US states have different laws related to UBI data today) and privacy concerns of customers related to their data collection and usage.
Proactive Insurance Companies
There are some insurance companies who have been proactive, and already a step ahead of their peers when it comes to offerings and effort related to connected cars. Some examples include:
- Progressive started work related to its connected car in 2008, with the launch of its first wireless device. With a user base of over 3 million, the company’s Snapshot insurance program offers users discounts for driving well, with the ability to assess both individual and location risks — for example, identifying locations which normally have a high incidence of accidents. Progressive has also partnered with GM’s OnStar Corp. to bring its UBI program to OnStar customers.
- Allianz’s Connected Car platform is already being used in multiple countries with the company having already collected over 14 billion km of driving data. Late last year, Allianz also extended its partnership with Marmalade, a specialist telematics provider for young drivers.
- AllState offers Drivewise, its UBI program which provides rewards points for completing safe driving challenges, with points redeemable on the user’s favorite brands, gift cards, travel, merchandise, etc. The company’s mobile app also allows users to view their driving performance with safety tips provided as well.
- Zurich late last year announced its acquisition of Bright Box. Bright Box (Remoto) is a stellar connected car expert start-up which provides AI led telematics solutions such as driving style scoring, remote car control, vehicle check report, etc.
Start-Ups in the Fray
Some exciting start-ups in the sector include:
- Octo has created the world’s largest insurance telematics database, having analyzed 196 billion miles of driving data as well as 400,000+ crashes. The company uses this data as input in its proprietary predictive algorithm platform to create an accurate prediction risk profile of the driver for its insurance partners. Octo has 60+ insurance partners and has also created a comprehensive solution set for its partners, with offerings ranging from pricing support, crash alerts and reconstruction to web portals for customer engagement.
- ‘Insure the box’ is a UK based company which provides a small telematics device, known as a black box to its users which helps the company in analyzing user driving habits. The user, on receiving a safe driving rating, earns rewards which can include receiving as many as 100 Bonus Miles each month. The company has a driving data of 2.6 billion miles.
- Argus Cyber Security provides cyber security solutions for various automotive players including OEMs and their suppliers, connected fleet operators, and aftermarket providers of connectivity services. Other notable companies include TrueMotion, Mojio, Cuvva which use mobile apps and collect telematics data to unlock opportunities for users, insurance companies and other ecosystem participants.
- Vinli, featured as a ‘Cool Vendor’ by Gartner leverages telematics data from vehicles to offer many services across the industry value chain to players including auto OEMs, telcos and insurance companies. The company has also worked towards General Data Protection Regulation (GDPR) compliance (effective May 2018) to address data privacy and security issues.
- There are also pay per mile or usage based car insurance startups such as Metromile and Zubie in the ecosystem. For example, a company like Zubie helps insurers in rolling out UBI programs quickly. It takes over all UBI data flow functions such as collection of data (from different devices) to scoring and delivery. Zubie has had $25.9mn funding till data.
Insurers have their hands full when it comes to working on connected car related initiatives. By 2020, connected cars will have collected more than 11 petabytes of data a year — insurers who are still planning their connected car strategies need to gear up for this data explosion. Insurers also need to contend with the variety of devices which are being used to collect the data, and understand that they will need to have many billion hours of driving data and the experience of several years of running a UBI program before some significant meaning can be derived from their collected telematics data.
Given the scale of these challenges, probably the most important element which can help insurers starting out or gearing up now (apart from making the necessary investments and strategy), is creating relevant ecosystem partnerships — these partners can provide data, experience and expertise- all aspects needed to start or expand a successful connected car insurance initiative.
Insurers starting out or gearing up will also need to choose a specific strategic option now which will determine how they want to move ahead. This will be based on how much investment they are ready to commit, as well as how much of a strategic priority this initiative is in their organization.
The Final Word
UBI is fast becoming a norm now especially in the US, with related research claiming that 70 percent of all US insurers will be using this technology by 2020. According to Frost & Sullivan, about 100 million drivers globally would have taken such policies by 2020, with geographies such as Italy, UK and the US dominating.
Naturally, users will start expecting UBI discounts from all insurers in the near future, and insurers who are not offering this service stand to lose major ground. However, UBI is only a part of the puzzle. As the connected car model continues to evolve, many major benefits can accrue to the insurer if this opportunity is taken up well. To maximize success, insurers will need to be proactive and flexible in their approach, and be ready to accept and adopt disruptions, new technologies and business models. Alliances and partnerships will be key to further progress, as will be allaying user privacy concerns.