Industrywide fewer than about a tenth of policyholders are going the so-called usage-based insurance route, though the percentages are higher at insurers that have worked hard at it, according to consultants.
Analysts say the breakthrough in the GM partnership, which is with a unit of American Family Insurance, is that the hassles largely go away for policyholders. Once policyholders consent, insurers can access their data without the use of dongles or cellphone apps. The partnership follows an arrangement
Ford Motor Co.
and Lincoln Motor Co. struck with Nationwide Mutual Insurance Co. that was detailed in February and involves “connected car” data.
“This is the leading edge of what within a few years will be all major automobile manufacturers having similar arrangements with insurers,” said Robert Hartwig, a professor of insurance at the University of South Carolina’s Darla Moore School of Business.
“What GM is doing is eliminating one of the major obstacles that customers have cited: installing a dongle device, downloading an app,” he said. “For this type of partnership to be successful, it has to be seamless.”
Insurance consultants and analysts expect numerous other partnerships over the next year or so.
For decades, the $247-billion-in-premiums industry has relied heavily on lumping applicants into broad actuarial categories by characteristics such as age, gender and car type to supplement information gathered from state motor-vehicle records.
began a push about 20 years ago to use data about policyholders’ specific driving behaviors to draw more tailored conclusions about customers.
For insurers, the goal is monitoring such things as how smoothly policyholders turn corners and how frequently they slam on the brakes. This data helps to identify policyholders whose caution will keep them out of trouble and are worthy of lower premium rates than under traditional pricing methodologies. The devices also can adjust for how far people typically drive, as higher mileage generally correlates with accidents.
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Many insurers have said that savings of up to 30% or even 40% are possible for the best drivers compared with rates under the traditional methodology, though not everybody gets that big a discount. In 2019, the average annual premium expenditure for a typical U.S. private-passenger auto policy was $1,048, according to trade group Insurance Information Institute.
Some insurers are eager to strike deals with car makers precisely because the so-called usage-based technologies have proven themselves so effective.
“There has been an immense number of conversations in the background for years now between the insurers and the auto makers,” said Michael Zaremski, a stock analyst at Credit Suisse. “A lot of insurers are desperate to get a foothold in telematics. They know it is the Holy Grail of underwriting.”
For car manufacturers, usage-based insurance policies have emerged as a potentially lucrative use for connected-car data, analysts say. Some auto makers already provide driving data to insurance companies to help connect their owners to better insurance rates, though few have gone as far as GM and Ford in offering their own branded plans.
GM and Ford also give vehicle owners access to potentially cheaper insurance by beaming data from cars to a data exchange run by a unit of
Verisk Analytics Inc.
Numerous insurers can tap into this data to offer customized insurance rates based on individual driving behaviors. In addition to GM and Ford, the exchange also gets data from big car makers
Honda Motor Co.
Hyundai Motor Co.
, according to Joe Wodark, an executive who works with the Verisk Data Exchange.
Another vehicle manufacturer with its own insurance program is
It uses data from its cars to offer insurance to customers in a program supported by insurer Markel Corp.
Privacy concerns loomed larger in earlier years as a concern for policyholders in agreeing to allow insurers to monitor their driving. But a lot of those worries have evaporated as consumers have grown accustomed to technology firms knowing their whereabouts through cellphone location programs.
“Privacy isn’t the issue. Everyone carries a cellphone that has location services turned on,” said Brian Sullivan, owner and editor of Risk Information Inc., a publishing and seminar company.
The drawback has been the inconvenience of some telematics programs. For people whose budgets aren’t stretched, the savings may not be meaningful enough for those hassles. “If I have to stand on my head and rub my tummy, people say, ‘No, I don’t think so,’ ” Mr. Sullivan said.
Interest in usage-based insurance has picked up as the coronavirus pandemic has dragged on, some consultants and analysts said. Many consumers have opted to give the programs a try as a way to wring savings from their vehicles being parked in driveways during the shutdowns.
“It is hard to capture the savings from less driving unless you are in a telematics program,” Mr. Sullivan said. “Anecdotally, people are joining telematics programs at a higher rate than in the past.”
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