The connected car’s emergence is as disruptive for insurance companies as it is for automakers. Usage based insurance (UBI) holds a major role in future plans, prompting insurers facing a steep technical learning curve to partner with OEMs. They also are moving to create apps that provide services that make UBI more attractive to customers.
Insurers want to use actual driving data to set rates, so they’re keenly interested in getting information from vehicles. Most started using USB dongles that plug into OBD ports a few years ago, and smart phones are increasingly being used to get data on speed and miles traveled. Insurers plan to leverage native vehicle connectivity provided by OEMs, but that data collection technique may not come until more vehicle models have modems.
“Companies can’t build an insurance proposition that only gets to 10, 20 or 30% of the market, insurers can’t offer programs only for people who own certain types of vehicles,” said David Lukens, Director of Telematics at LexisNexis Risk Solutions. “There are so many ways to get data from the car it’s become confusing.”
Companies discussed some of their UBI strategies at the recent Connected Car Insurance conference in Chicago. Connectivity issues like integrating cell phones and creating apps are similar to those being tackled by OEMs and Tier 1s.
Grappling with connectivity issues dominated the conference, but speakers also addressed the looming issue of autonomous driving. Issues here include decisions yet to be made by regulatory bodies.
“NHTSA recently told Google its system could be considered a driver,” said Eric Nordman, Director of the Center for Insurance Policy & Research at the National Association of Insurance Commissioners. “I don’t think this is viable. A consumer suing General Motors or Google for damages after an accident is not good, it could take six years to get their car fixed.”
Technical learning curve
Currently insurers must deal with the different types of data collected by USB dongles and phones. Such data isn’t as comprehensive as provided by on-board modems, so many companies are looking at ways to work with OEMs. Insurers and OEMs face a similar challenge when they gather extensive data from the vehicle network. Monetizing all the data generated by cars requires a significant investment and powerful data mining capabilities.
“We can easily harvest 30 Gbytes of data per hour,” said Jim Levendusky, Vice President, Telematics, at Verisk Insurance Solutions. “The idea that insurers can all build their own infrastructure for collecting and analyzing all this data is not practical.”
Verisk recently set up a data exchange designed to collect information from OEM fleets that can be accessed by insurance companies. GM is the first partner in this program, other OEMs are expected to join before year’s end, Levendusky added.
Technical challenges will diminish for those who turn to third parties and exchanges, but they won’t disappear. Insurance companies may have to ramp up their technical expertise level to understand what happens before accidents.
“There’s a big learning curve,” Levendusky said. “Analyzing accelerometer data in three axes is not something that has typically been resident at insurance companies.”
Attracting consumers is the ultimate goal of connected vehicle strategies. Consumers want lower costs, but many are concerned about being monitored among other privacy issues. Roosevelt Mosley, a social media researcher from Pinnacle Actuaries, analyzed more than 8 million UBI-related Tweets. He said “customer sentiment regarding UBI is still overwhelmingly negative.” Some speakers noted that even users who sign up and order USB dongles don’t install them.
“There are two big issues for why people don’t sign up,” said Dave Pratt, General Manager, Usage Based Insurance, at Progressive. “Privacy, they don’t want to share data. Getting 100% signed up is unachievable; around 30% say there’s no way they’ll do it. The other is the hassle—they don’t want to plug something into their car.”
Speakers noted that apps and smart phones can alleviate some of that connectivity issue. Matteo Carbone, a Principal at Bain & Co., noted that providing apps can help improve a corporation’s bottom line. For example, an app may contact First Responders after an accident, then ask if the driver wants to file an immediate insurance claim.
Adding subscription services can add revenues that are lost when safer drivers are given discounts, he added.