Automakers Move Into The Insurance Business Thanks To Connectivity Posted on : Dec 05 - 2020

Usage-based insurance is one of the most fundamental changes to the auto insurance business since it began at the turn of the twentieth century. Just as advertising has transformed through the collection of massive quantities of individual user data, the same is happening to insurance premiums. Automakers have sampled the possibilities by agreeing to supply some of that data to insurers, but they are now taking a more active role in selling policies to customers thanks to the in-vehicle connectivity they provide.

At its core, insurance is about pooling the premiums collected from policyholders and paying out claims when something goes wrong. The amount of the premiums is based on risk modeling. Its goal is to accurately predict how much will likely need to be paid out each year while making sure the premiums are at least equal to or greater than that amount.

In-Vehicle Connectivity Data Monitors Behavioral Risk

Traditionally, car insurance premium models are based on a combination of demographic information about drivers. To varying degrees, this data can be correlated with the probability of getting into accidents, geographic location, and the value of the insured vehicle. However, those model parameters are all fairly coarse—not every 24-year-old single male or 50-something mother will have the same risk profile.

This is where in-vehicle connectivity comes in. For the better part of a decade, insurers like Progressive PGR have offered policyholders the option to install a device in the vehicle’s diagnostic port. The device tracks some of their driving behavior such as speed and acceleration/deceleration rates that are indicators of risk. In exchange, the policyholders receive premium discounts.

More recently, automakers such as Hyundai Motor Company have struck deals with data aggregators like Verisk Analytics VRSK +0.9% to provide telemetry data directly captured through embedded telematics systems. Guidehouse Insights’ Market Data: Connected Vehicles report anticipates that nearly 94% of new vehicles in North America, and 80% globally, will come equipped with embedded telematics by 2025. General Motors (GM GM +0.7%) is taking this a big step further by launching its own OnStar Insurance product, which directly leverages vehicle data it has access to. View More