Motor insurance has become a thorn in the side of vehicle ownership. With traditional insurance, good drivers and short-distance drivers subsidise reckless, distracted and long-haul drivers.
But, on the horizon, are new ways to determine risk by data, distance and devices that could save money and lives for individuals and fleets.
In this special report, Auto Futures explains the leading trends in motor insurance including Usage-Based Insurance (UBI), mobile apps, automaker-specific insurance and advanced data analytics that are disrupting the insurance industry.
What is Usage-Based Insurance (UBI)?
Traditionally car insurance is based on factors such as vehicle model, age, location, distance driven and driving records. Telematics technology sends information about distance, location, and how the vehicle is operated which can be used to rate driving. Connected cars have telematics units embedded or a device can be connected to the OBD-II port of a vehicle that wirelessly sends data about the vehicle to the insurance company.
Usage-Based Insurance can be based on either how the driver behaves or the distance, says Annie Reddaway, research analyst at PTOLEMUS Consulting Group, who notes that UBI is usually cheaper for high-risk drivers such new drivers whose insurance rates are high.
One of the most popular providers of UBI insurance in the US is Progressive Insurance that started with the Progressive Snapshot device that connects to the OBD port. It is also the oldest program. UBI program can save drivers 10 to 20% says Reddaway. Driving behaviour that can be monitored includes acceleration, hard-braking, fast turning, location of the vehicle, speed and time of day the vehicle is driven.
Reddaway says the UBI insurers will be marketing insurance beyond the high-risk segments including to older drivers. There were over 400 UBI programs by the end of 2018 and 25 million policies.
She notes: “Mobile UBI grew 160% in 2018. The affordability and accessibility of the smartphone and its increasing sophistication as a sensor have made it a key driver of UBI growth. It reduces costs for insurers and offers a key customer engagement tool.”
She says there is an increasing demand for also monitoring driver distraction such as using cell phones.
Mobile Smartphone UBI
The TrueMotion, a smartphone telematics platform, uses machine learning to distil smartphone derived data that is as accurate as OBD device data, says Matt Fiorentino, director of marketing for TrueMotion Inc.
The TrueMotion platform provides apps for insurance companies. The apps use smartphone sensors to monitor hard braking, speed, acceleration, time of day and location. The smartphone app can also collect data about mobile phone use such as app use, text messaging and if the phone is docked. The data collected for insurance programs is determined by the insurance carrier. TrueMotion provides apps for insurers such as Unipol, Metlife, Progressive, Nationwide, Travelers, Intact Insurance and others.
“Insurance carriers recognise the risk of distracted driving and are in the process of using the data for determining risk,” says Fiorentino.
In case of a collision, the smartphone can also speed up the claims process by recording the location, time, speed and direction of impact, airbag deployment as well as weather and traffic data.
Not all drivers get discounts through behaviour-based UBI programs. In fact, the Progressive website cautions on its program website: ‘Your rate may increase with high-risk driving. But, only about 2 out of 10 drivers actually get an increase’.
Distance-based (Mileage-Based) Insurance MetroMile
With traditional auto insurance, low-mileage drivers are subsidising the high-mileage drivers, says Rick Chen, director of communications for Metromile.
Metromile’S insurance customers install a Pulse device on the OBD port of the vehicle and have the added benefits of an app that will locate the car, show mileage records and give street sweeping alerts to avoid parking tickets.
“Tesla is a popular model, there has been a 200% increase year-over-year of Tesla customers at Metromile,” says Chen. Typical customers for Metromile include luxury car owners, low-mileage pleasure drivers, city dwellers who take public transport to work, retirees who may live in a community and suburban parents.
Currently, Metromile rates are based on miles driven not by the style driving and traditional factors. The Metromile app offers users an AI assistant for virtual claims that expedite processing claims in the case of an accident. The latest program from Metromile is a mileage-based program for Turo car owners in which the car is insured when not being rented out on the Turo platform.
Mile Auto Concierge Insurance for Porsche Vehicles
“Most Porsche drivers drive less than 5,000 miles (8,047 KM) a year and Porsche owners were not satisfied with the insurance experience through traditional insurance companies,” says Fred Blumer, CEO and co-founder Mile Auto insurance.
“We worked with Porsche [Financial Services] to create an insurance experience to meet the expectations of Porsche owners,” said Blumer who notes the company also insures older model Porches. Coverage includes genuine Porsche parts, claims concierge, high-value rentals ($125 a day) and a diminished value option so that if a Porsche is damaged it is reduced in value and the owner is compensated.
Blumer says that plug-in OBD devices can be hacked, may create a gateway to the vehicle and may negatively interact with the vehicle as well also create privacy issues. All the Porsche owner needs to do with Mile Auto insurance is use a mobile web link to take a photograph of the odometer from a smartphone either once a month or every 6 months depending on the plan.
“Porsche owners are excited about the amazing product and even Porsche owners who are not low-mileage drivers have joined the program,” says Blumer.
What Data Can do For Fleets?
Concirrus was founded for underwriting cargo ships for shipping when they found that the underwriting was flawed because there was not a lot of data. More data is the key to their products called Quest Marine and Quest Motor.
“Data technology is revolutionising the motor insurance business and can make big changes to make it more efficient. We pull all the data together for insurance risk in a new way of underwriting. We are taking huge amounts of data including GPS and telematics and use machine learning to better understand risk,” says Craig Hollingworth, managing director Motor at Concirrus.
Motor insurance is especially difficult to manage for fleets of thousands if not hundreds of thousands of cars, Concirrus is making the process easier.
The Concirrus platform takes multiple data sources – behaviour data from telematics and video devices with traffic patterns, local weather and anonymised national collision data to provide a clearer view of risk to the insurance market with automated notifications to insurers.
Recently, Concirrus announced it is working with the dash camera company SureCam. Concirrus created software that gets the information from the camera to document details when an accident occurs.
“The beauty of the system is that it speeds up the claims process the management of the claim, and prevents fraud as well as legal consequences. It also detects speed data and automates workflow,” says Hollingworth.
Automakers are Getting into the Insurance Act
One of the major complaints of Tesla drivers is the cost of insurance, says Hollingworth, because of technology the cost to replace the bumper of a Tesla in the UK can be £10,000 with a 39-week wait for parts. In the US, insurance for Tesla models can be as high as $2,500 a year. In April, Elon Musk announced that Tesla would offer its own insurance.
A document filed with the California Department of Insurance states that Tesla’s insurance will be offered through State National Insurance Company, Inc. and use telematics data with customer permission. Discounts will be offered for some Tesla safety features. However, Musk warned during a company webcast that Tesla drivers “have to agree to not drive the car in a crazy way,” or, “they can, but then the insurance rate is higher.”
In late August, Tesla began offering insurance to customers in California with discounts up to 20% – 30% because ‘the pricing reflects the benefits of Tesla’s active safety and advanced driver assistance features that come standard on all new Tesla vehicles’. Within a few hours of the insurance launch the insurance quote webpage stated “Algorithm update in progress”.
The website Tesla insurance was updated. The Tesla insurance website states, ‘We use anonymized, aggregate data to inform our insurance rates, such as including the benefits of Tesla’s active safety and advanced driver assistance features. Tesla Insurance does not currently use data from individual vehicles, such as GPS or vehicle camera footage. We plan to expand the product offerings to incorporate more types of data over time’.
OnStar’s Smart Driver service gives customers the opportunity to self-monitor important driving behaviors. More than 4.9 million customers have enrolled in the program since launch in May 2016. Separately, customers can privately check for insurance discounts with participating insurance carriers – a private, risk-free option to find rewards for driving smart. 2.8 million GM customers are enrolled in the OnStar Insurance Discounts program, which can potentially lead to insurance discounts of up to 40 percent, says Stephanie Lang, advanced technology communications, OnStar and Connectivity at General Motors.
What is the Future of Auto Insurance?
“For drivers driving data makes insurance fairer when it is based on how you drive. As insurers learn to use data in the next three to five years the entire insurance industry will be reshaped by data,” predicts Fiorentino.
“We’re hoping to slow down drivers by automating it and looking at patterns as well as prevent accidents. In the case, where there is an accident we can have the insurer call them immediately. There could be a huge cost-saving eventually to consumers,” says Hollingworth.
“There is a vast amount of data that could be collected from connected vehicles. The power of the data is in the hands of the OEMs – how they plan to use that data to improve insurance and how to offer new services and monetise it,” says Reddaway.
“In order to provide insurance they will probably have to work with partners that provide risk management and data exchange platforms.”