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Connected Car Data Provides Huge Value for Insurers, Customers, and Manufacturers
James Grant, Vice President, Business Development, Verisk
Connected cars and telematics have the potential to significantly benefit UK insurers, their customers, and even vehicle manufacturers in a myriad of ways depending on how willing they are to collaborate and share the data associated with these technologies.
A connected car, like many other IoT technologies, can communicate and share data generated by the vehicle and feed this information directly to the driver or to other systems or third parties if consumer consent is given. The car features a broad spectrum of capabilities that ranges from integrated GPS navigation to sensors that allow for advanced driving-assistance systems (ADAS) and telematics devices that record vehicle usage and driver behaviour.
Traditionally, telematics has been viewed as a niche product for young or inexperienced drivers and is associated with an almost Big Brother-style approach of monitoring and intervening where driver behaviour is considered high risk.
Against the backdrop of COVID-19 and its rapid and drastic impact on mobility patterns and commuting behaviours, this is an increasingly outdated view. Many customers from all different backgrounds have become more receptive to usage-based insurance policies – often powered by telematics– that are more reflective of their driving habits.
The UK motor insurance market is fiercely competitive, and customers frequently shop around for better deals or policies that meet their requirements. The search for the best price has placed mounting pressure on insurers to fulfil growing demand and do it in a way that is still profitable.
While penetration of telematics in insurance is relatively low (around 3-5 percent of the UK market), this is anticipated to increase significantly for a number of reasons. There is huge potential in extracting data from connected cars, which represent approximately 14 million of current UK cars. Vehicle manufacturers are keen to sell the data from connected cars to insurers and data providers; insurers are seeing the benefits of how driver behaviour and usage data can help them underwrite policies more accurately; and customers are being incentivised to share their connected car and telematics data with discounts and other rewards. Improving underwriting accuracy while rewarding customers
Motor insurance premiums are typically calculated by rating factors based on personal details relating to the driver. These factors include age, occupation, home address, driving and claims history, car type, what cover they select, and how much excess they agree to pay.
While this can give some insight into the level of risk each driver carries, these rating factors are proxies rather than a direct measure of behaviour or usage.
How frequently a driver is on the road, where they drive, what time of day they drive at, and whether they have a history of speeding or braking harshly are all highly valuable predictors of risk that are not known during the traditional underwriting process.
While penetration of telematics in insurance is relatively low (around 3-5 percent of the UK market), this is anticipated to increase significantly for a number of reasons
From a pricing perspective, mileage data is one of the strongest predictors of loss, as the number of miles driven increases the amount of time a vehicle is on the road and its risk of having an accident.
The main caveat to using mileage data effectively in underwriting is that it can only be obtained reliably using telematic devices. The alternative is to acquire mileage data from an odometer reading during an MOT at the point of quote. Odometer readings are highly valuable but are limited: they’re only available until a car has been on the road for over three years – a problem that telematics help solve.
Historically, telematics-based motor insurance is dependent on aftermarket OBD-II hardware or mobile apps with data collection beginning after the policy is bound. Using driving behaviour data from the growing number of connected cars presents an opportunity to create a more consumer-friendly paradigm: incentivising drivers to opt-in and share telematics data at the point of vehicle purchase. This decision to share telematics data is making a historical and ongoing snapshot of driver behaviour available to insurers at the point of quote.
Pandemic-related restrictions and lockdowns had brought the average mileage of UK drivers down considerably, with many people still working from home and making fewer journeys – although there is the possibility some UK drivers may be driving more frequently due to a reluctance to take public transport. An area that has experienced significant growth over the pandemic is the number of door-to-door online deliveries, which in turn has led to a boom in sales of new and used light commercial vehicles (LCVs).
One of the challenges insurers face is that they cannot give significant discounts for drivers who use their cars less than average because they cannot verify the mileage. For this to happen, insurers will need to engage with car manufacturers and look at ways connected car data can be standardised and made usable for insurance purposes. Then, they will need to use this information to tailor policies to individuals who’ve consented to receive new insurance offers.
A unique opportunity for manufacturers and insurers
While the benefits of telematics for both insurance pricing and customer engagement are well-documented, there are also strong incentives for original equipment manufacturers (OEMs) to repurpose connected car data and drive new relationships.
The data generated from connected cars can open up new revenue streams for OEMs, with insurers being the ideal candidates for business partners. With insurance-related data sharing, OEMs can take an active role in helping their drivers save money on motor insurance. Opt-in data sharing often occurs with the incentive of the driver getting access to valuable connected services – for example, driver feedback, tips and tricks – that become part of the OEM experience.
Though there is huge potential, it should not be underestimated how difficult it can be to harmonise and normalise OEM data, largely because the sensors and equipment they’ve got in each car is built or behaves differently. Connected cars have typically not been built with the intention of the data being extracted from them for insurance purposes, making it difficult to package this information in a meaningful way.
Verisk has been actively involved in harmonising and normalising this data to support the growing usage-based insurance market. Verisk connects insurers with driving data from many leading automakers, including General Motors, Ford, Honda, and Hyundai, through the Verisk Data Exchange, the largest connected car database of its kind in the U.S.
Acquiring usable telemetry and using it at scale can be costly and time consuming for insurers. Anyone interested in this data will recognise that working with the different OEMs may be too challenging for individual insurers to handle on their own. Verisk’s IoT& Telematics team has experienced this challenge first hand. Harmonising this data from various marques and models and standardising it for use by the insurance industry has taken Verisk considerable investment, skill, and effort. The combination of that dedication to the future of motor underwriting and the volume of data that is now available is what is making the Verisk Data Exchange a useful source of underwriting data.
As telematics continues to grow, and customer expectations for fast purchase experiences continue to rise, it’s only going to become more critical for insurers to have quick access to standardised data on individual driving behaviour.