There are three reasons why the connected car could revolutionise usage-based insurance, says Steve Kerrigan, from LexisNexis Risk Solutions.
The connected car has been a buzzword for years but the volume of connected vehicles is growing at a rapid rate and the insurance market can now start to benefit from the direct relationships we are building with some of the leading European car manufacturers to develop connected car data products, the insurance market has told us they want.
The connected car is unlocking a whole new world of new services and data products for consumers globally. Car manufacturers, for example, mention anecdotally that they are investing an average of £150 per vehicle just on the hardware to make their cars connected. This is a significant investment, and they’re doing this to bring new services and new value to the customer – one of these services being usage-based insurance (UBI).
We see three driving forces behind why we think the connected car is going to completely revolutionise usage-based insurance. The first one is volume. Worldwide sales of connected cars with embedded telematics were estimated to have hit 28.5 million units in 2019 i. Anecdotally, our automotive partners tell us over 90% of their new vehicle sales in 2021 are connected vehicles and eventually connected cars are likely to become commonplace.
The second reason has to do with the economics. When you think about the aftermarket telematic propositions today, insurance providers need to consider the cost of the telematics device, the cost of installation and the associated costs around the management of the user with a device. With the connected car, accessing the data and delivering insurance becomes more cost effective by reducing the upfront investment that insurance providers have previously had to make in order to deliver usage-based insurance.
The third driving force behind the connected car’s revolution of UBI has to do with the customer experience. Today, most aftermarket telematics propositions create some friction at the beginning of the relationship with the new customer. Consider, as a consumer, you may be required to have a device installed in your vehicle. This friction or perception of it can occur whether you’re waiting at home for an engineer, waiting for someone to tamper with your car after you’ve driven somewhere to get it professionally installed or even having to put a plug in yourself. Alternatively, you may be required to download a monitoring app and pair the device via Bluetooth to another device or a monitoring app on your phone. Then you must maintain the app. Either of these processes might be perfectly acceptable to those who are more comfortable navigating unknown technologies but less so for consumers who see the whole process as an inconvenience.
With a connected car, it can be as simple as pressing the proverbial consent button. That button can enable you to provide consent, and once enabled, the data can start to flow. The reduction in friction alone can open up UBI to new market segments that we haven’t seen before.
Volume, better economics and better customer experience with less friction are the three driving forces that will revolutionise UBI.
It all starts with the data, which is why we are investing in building relationships with car manufacturers and creating our connected car data exchanges to make this data real for the insurance market and to solve the many integrations that insurance providers would otherwise need to make with car manufacturers.
The next step is developing the first generation of connected car data products insurance providers have told us they want.
It will start with mileage using data from the car’s odometer – an accurate output of odometer data from the start and the end points of each journey. By providing per trip data output, insurance providers can benefit from predictive insights, such as mileage estimations.
Building on this, comes mileage and vehicle location. When collected and used appropriately, the location of a vehicle for the start and the end of each journey points coupled with the odometer output can provide a great insight into the risks associated with the mileage amount.
As we know from our extensive experience in telematics, driver behaviour is massively important as a risk indicator. Therefore, the next stage is building specific driving behaviour-based solutions for insurance providers to enhance their existing rating indicators. There can be little doubt over the value of driving behaviour direct from the connected car for more personalised pricing.
Furthermore, consider that the ability to also deliver crash data with additional connected car data points available directly into claims processing could vastly improve the customer experience through a more streamlined claims process and may also offer insurance providers significant benefits in managing claims costs.
The connected car and the insurance services that connected car data can support are no longer hypothetical ideas – they are here, and we are working to make the data accessible, useable and beneficial to insurance providers so that drivers can start to truly benefit from their car’s connectivity, through their insurance.