Since the turn of the millennium, in-built technology, together with the data produced and captured by cars has grown exponentially. Safety, security, comfort, enhanced ownership and driver experience are amongst the main motivations for the enhancements by auto manufacturers and in such a customer focused and highly competitive market – things are moving very quickly.
Initially, much of the technology was focused on infotainment systems such as audio and satellite navigation but it has now evolved into more sophisticated and complex Advanced Driver Assistance Systems (ADAS) and Connected Car features. This is providing a rich stream of static and real world driving data, which hold the potential to support post-sale services such as insurance.
Insurance enables mobility
As vehicle insurance is both a legal requirement and an important element of the total cost of ownership, making this more equitable and affordable is an important factor in mobility.
Today, the cost of a traditional insurance premium is based on the car’s price, age and engine size; the postcode and occupation of the owner and their claims and in some instances credit history. In a digital world, where an increasing amount of what consumers do prompts an algorithm to personalise and optimise their experience, the way car insurance is purchased remains firmly rooted in the 20th century.
However, emerging dynamic data from the car and about the car’s safety features is creating new and measurable insight on both the person and the vehicle.
ADAS in insurance pricing
Starting with ADAS, where an ADAS feature can provide a benefit to the insurance risk, by reducing claim frequency, the ideal scenario would be for the insurance sector to gain access to this insight for pricing and underwriting. From the auto manufacturer’s perspective, this opens the opportunity to create much greater awareness of the true impact of ADAS on their personal safety, which in turn enables cost-savings rewards from the insurance company and boosts on-going consumer demand.
However, obtaining the precise specification on a new vehicle is very complex with a variety of standard and optional features that will include ADAS. Also, ADAS features tend to be described very differently from manufacturer to manufacturer to create market differentiation. So the challenge has been to standardise the terminology for insurers, adding some insight and meaning to the ADAS features themselves and making it available on demand – at point-of-quote for example.
Dynamic data provides gateway to UBI
Moving from the ‘static’ vehicle build information, dynamic data from a connected car goes even further. This granular data is giving insurers a better understanding of their customers and catalysing discussions between manufacturers and third parties on how to deliver next generation customer services – such as first notification of an incident.
One of the long-mooted benefits of connected car technology is the ability to use data on how and where a car is driven to provide the gateway for usage-based insurance (UBI), introducing a more accurate and fairer way to calculate one of the biggest annual costs associated with running a car. Premiums are bespoke, based on mileages and driving behaviour, factors which encourage and reward safer driving.
60% want UBI
We know customers want UBI. In the last few years, we researched the views of a cross-section of over 3,000 UK motorists and found that, once they understood it, 60% wanted UBI but only 5% were being offered it.[i]
Customers can see the benefits of paying for insurance determined by how they drive and the technology is there to make it happen.
The acceleration of the connected car into the mainstream has encouraged both auto manufacturers and insurers to be pragmatic with alliances around the world working to deliver UBI, with the tantalising prospect of it becoming available to customers at the point of sale when they purchase a car.
Monetising data from the car
These collaborations have the potential to offer some notable win-wins. Auto manufacturers will finally have an opportunity to monetise the R&D investment they have ploughed into delivering telematics and connected car technology. While insurers will no longer need to develop their own telematics solutions, a complex and costly option taking them outside their area of expertise.
Big win for customers
But the biggest win is for customers who will reap the tangible benefits of paying insurance based on features on their exact car and something they have control over: usage. It also helps to make driving a vehicle, traveling as a passenger and being on the roads as a pedestrian or cyclist a much safer experience
[i] LexisNexis Risk Solutions UK Consumer Telematics Study (February 2020)