By Leslie Scism
Many car insurers have struggled for years to get policyholders
to adopt telematics, a way to collect information about mileage and
driving habits directly from the vehicle. General Motors Co.'s new
deal to market car insurance based on data from onboard computers
advances insurers' efforts to size up risk.
Through cellphone apps and dashboard dongles, insurers have been
hauling in a lot of data and offering discounts to the safest
drivers, but many policyholders think the hassles outweigh the
Industrywide fewer than about a tenth of policyholders are going
the so-called usage-based insurance route, though the percentages
are higher at insurers that have worked hard at it, according to
Analysts say the breakthrough in the GM partnership, which is
with a unit of American Family Insurance, is that the hassles
largely go away for policyholders. Once policyholders consent,
insurers can access their data without the use of dongles or
cellphone apps. The partnership follows an arrangement Ford Motor
Co. and Lincoln Motor Co. struck with Nationwide Mutual Insurance
Co. that was detailed in February and also involves "connected car"
"This is the leading edge of what within a few years will be all
major automobile manufacturers having similar arrangements with
insurers," said Robert Hartwig, a professor of insurance at the
University of South Carolina's Darla Moore School of Business.
"What GM is doing is eliminating one of the major obstacles that
customers have cited: installing a dongle device, downloading an
app," he said. "For this type of partnership to be successful, it
has to be seamless."
Insurance consultants and analysts expect numerous other
partnerships over the next year or so.
For decades, the $247-billion-in-premiums industry has relied
heavily on lumping applicants into broad actuarial categories by
characteristics such as age, gender and car type to supplement
information gathered from state motor-vehicle records.
Progressive Corp. began a push about 20 years ago to use data
about policyholders' specific driving behaviors to draw more
tailored conclusions about customers.
For insurers, the goal is monitoring such things as how smoothly
policyholders turn corners and how frequently they slam on the
brakes. This data helps to identify policyholders whose caution
will keep them out of trouble and are worthy of lower premium rates
than under traditional pricing methodologies. The devices also can
adjust for how far people typically drive, as higher mileage
generally correlates with accidents.
Many insurers have said that savings of up to 30% or even 40%
are possible for the best drivers compared with rates under the
traditional methodology, though not everybody gets that big a
discount. In 2019, the average annual premium expenditure for a
typical U.S. private-passenger auto policy was $1,048, according to
trade group Insurance Information Institute.
Some insurers are eager to strike deals with car makers
precisely because the so-called usage-based technologies have
proven themselves so effective.
"There has been an immense number of conversations in the
background for years now between the insurers and the auto makers,"
said Michael Zaremski, a stock analyst at Credit Suisse. "A lot of
insurers are desperate to get a foothold in telematics. They know
it is the Holy Grail of underwriting."
For car manufacturers, usage-based insurance policies have
emerged as a potentially lucrative use for connected-car data,
analysts say. Some auto makers already provide driving data to
insurance companies to help connect their owners to better
insurance rates, though few have gone as far as GM and Ford in
offering their own branded plans.
GM and Ford also give vehicle owners access to potentially
cheaper insurance by beaming data from cars to a data exchange run
by a unit of Verisk Analytics Inc. Numerous insurers can tap into
this data to offer customized insurance rates based on individual
driving behaviors. In addition to GM and Ford, the exchange also
gets data from big car makers Honda Motor Co. and Hyundai Motor
Co., according to Joe Wodark, an executive who works with the
Verisk Data Exchange.
Another vehicle manufacturer with its own insurance program is
Tesla Inc. It uses data from its cars to offer insurance to
customers in a program supported by insurer Markel Corp.
Privacy concerns loomed larger in earlier years as a concern for
policyholders in agreeing to allow insurers to monitor their
driving. But a lot of those worries have evaporated as consumers
have grown accustomed to technology firms knowing their whereabouts
through cellphone location programs.
"Privacy isn't the issue. Everyone carries a cellphone that has
location services turned on," said Brian Sullivan, owner and editor
of Risk Information Inc., a publishing and seminar company.
The drawback has been the inconvenience of some telematics
programs. For people whose budgets aren't stretched, the savings
may not be meaningful enough for those hassles. "If I have to stand
on my head and rub my tummy, people say, 'No, I don't think so,' "
Mr. Sullivan said.
Interest in usage-based insurance has picked up as the
coronavirus pandemic has dragged on, some consultants and analysts
said. Many consumers have opted to give the programs a try as a way
to wring savings from their vehicles being parked in driveways
during the shutdowns.
"It is hard to capture the savings from less driving unless you
are in a telematics program," Mr. Sullivan said. "Anecdotally,
people are joining telematics programs at a higher rate than in the
Write to Leslie Scism at email@example.com
(END) Dow Jones Newswires
November 19, 2020 08:26 ET (13:26 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.