Steve Kerrigan and Sherezad Rehmann, of LexisNexis Risk Solutions, examine the benefits and challenges for insurers in the access to and use of the data being delivered via the boom in connected cars.
The potential connected car data offers to the motor insurance market is fast becoming a reality. The volume of connected cars globally is on a fast-climbing trajectory – in 2019, worldwide sales of connected cars are estimated to have hit 28.5 million units[i], and Europe is slated to have the largest connected car fleet globally by 2023[ii]. Our own work with the automotive market suggests over 90% of new vehicle sales in 2021 are connected vehicles, challenging any notion that the connected car is not for the mass market.
The fact that car manufacturers anecdotally mention they are investing an average £100-200 per vehicle on the hardware to make their vehicles connected to bring new services to the customer, demonstrates the value being placed on connected car data in improving the customer experience. And one of the leading services is usage-based insurance.
For motor insurance providers, connected car data offers the opportunity to deliver personalised products and services at volume, based on highly accurate data direct from the embedded telematics control unit, on how the vehicle is used. Additionally, this would be without the cost associated with aftermarket devices or the customer friction created with traditional telematics policies where apps and devices need to be installed, activated and maintained. With the connected car, the customer simply consents to share their data and the data starts to flow.
With 53% of European motorists willing to switch car brands to gain access to new connected car features[iii], the foundations are now in place for motor insurance providers and car manufacturers to respond to this demand, knowing that in the future, those customers buying insurance for a connected car will outnumber those who don’t.
The challenge and opportunity has been in making connected car data workable and useable in the insurance space. This has meant solving a big ‘many to many’ problem. You need to connect many car makers to many insurance providers for many vehicles and their drivers to make connected car data accessible and usable for insurance.
The scenario where individual insurers need to connect with each car manufacturer to access connected car data just wouldn’t be workable. You also need to consider the data flowing from millions of vehicles which will need consumer permissions to share with the insurance market. The data will need to be standardised so that consumers are priced for insurance consistently regardless of the vehicle make or model they are driving. This is fundamental to achieving consumer trust and confidence in usage-based insurance from the connected car.
It has taken the formation of connected car data exchanges to help solve this ‘many to many’ challenge. Connected car data exchanges provide a way for driving data from motor manufacturers to be shared with insurance providers in a normalised, contextualised and standardised manner. Rather than many integrations insurance providers and car manufacturers have one integration.
The ultimate goal is to deliver the data to insurance providers as an actuarial grade driving score for UBI, regardless of the vehicle make or model.
Already multiple car makers are participating in the U.S. exchange and European exchange. Further deals will be signed with major U.S. and European automotive brands in 2021.
The emergence of connected car data in insurance will naturally lead to the evolution of specific UBI solutions to meet the needs of motorists. Mileage using data direct from the odometer for example can help take the guesswork out of annual mileage estimations and open up the opportunity for mileage- based products. Add in location to mileage for the start and the end of each journey and this will provide greater insight into the risk associated with the miles covered by the driver.
Driver behaviour is of course massively important as a risk indicator and can be used for more personalised pricing. Delivery of crash data directly into claims processing could vastly improve the customer experience by easing the claims process. This approach can offer insurance providers to potentially benefits in significantly managing claims costs.
Connected car data is accelerating and the insurance market needs to keep pace. We’ve already discussed in Emerging Risks how static data based on Advanced Driver Assist Systems (ADAS) is coming into motor insurance pricing with car manufacturer brands such as Mercedes-Benz Connectivity Services GmbH helping their customers benefit from personalised insurance products and programmes based on their vehicle’s ADAS. In tandem, the ecosystem has been created to help ensure the growing volume of ‘dynamic’ connected car data is meaningful and useable for insurance and other services.
A future in which drivers will be priced based on the exact features on their car and how they drive it is here. This, in turn can help reduce the cost of ownership and make all our roads safer.
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