This is the second column in a four-part Heard on the Street series on how “smart” vehicles will affect the automotive, tech and insurance industries. The first column can be found here.
Real-world driving data from connected cars is both a treasure trove and a minefield for auto insurers. Big banks’ efforts to deal with financial technology challengers offer some useful lessons.
The volume of so-called telematic driving data, whether from mobile phone apps, dongles, in-car sensors or aftermarket blackboxes, is ballooning. This enables much more accurate predictions of risks and claims than traditional ZIP Code data, making it highly valuable for insurers as well as empowering new competitors. In a sign of where things are headed,
said in November that it plans to offer car insurance.
Banks offer clues as to how insurers can respond. Banking, like insurance, is a highly regulated industry where big incumbents were relatively slow to change. The financial crisis kicked off a new era in banking innovation, helped by a shift to mobile commerce. To compete, lenders have had to invest heavily in new digital services and join with challengers.
Insurers use telematic data to offer cheaper policies to safe or infrequent drivers. Italy, Britain and the U.S. have the most so-called usage-based policies, but penetration is still low. The data also can help speed up claims or provide customer-friendly add-ons such as accident response, real-time driving feedback or stolen-vehicle tracking. Progressive, State Farm and
are big-name incumbent leaders in the U.S., while in Europe there are Admiral, AXA, Generali and UnipolSai.
The flip side for insurers is that the data is attracting new competition. Car makers such as GM see an opportunity to deepen customer relationships and boost profits. They may find it a tricky sell, given that many households own different brands of vehicles and seek to bundle auto and home insurance for a better price.
Insurance-tech startups arguably present a more serious challenge. Many offer customers cheaper data-powered products over slick apps. Their current market shares are small and scaling won’t be easy; car insurance renewal rates tend to be high. But many are nimble competitors with big ambitions. In October, usage-based car insurance provider Root raised $724 million in an initial public offering. It recently added house insurance to its offer.
Telematic data is a challenge to access and use. The format isn’t standardized and getting consent from customers can be tricky, particularly if multiple people drive a car. There is also a web of different privacy regulations across states and countries. Companies such as Otco, Verisk and Trak Global have become aggregators, navigating regulations to collect data and sell insight to insurers, fleet owners, vehicle makers and others.
Auto insurers need to work with startups and data providers to keep abreast of new developments and improve their digital offers. Otherwise they may eventually find themselves outmaneuvered. The tech giants haven’t shown much interest in insurance so far, but that could change as more car makers embrace Apple’s CarPlay and Google’s more integrated suite of automotive services.
Banks offer insurers a glimpse of the road ahead. Auto insurance can expect increasingly connected cars to accelerate the pace of change. They must invest and partner accordingly.
Write to Rochelle Toplensky at firstname.lastname@example.org
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