How Insurance Companies Adapt to the Connected Car Technology

Connected cars have already been on the market for a while now and by the year 2020, approximately 250 million of cars around the world will be connected. As a result, you can expect stuff like traffic and weather alerts, self-parking, and driving-assistance become the norm.

A lot of new vehicles coming out of the factory these days are already equipped with sophisticated sensors that are able to monitor locations, routes, oil temperature, tire pressure, brake wear, and miles driven. But that’s not all, the driver’s behavior can also be monitored.

As a result, this technology has enabled companies to meet the demands of the consumer for the following:

There is a robust ecosystem that’s forming around connected cars from sensors and chip manufacturers, telecommunications companies, and insurance companies. Further, it’s changing the competitive landscape for the insurance industry as it's being digitally disrupted in several different areas.

For example, risk profiles that are based on claim history may soon lose value with the availability of real-time data. Further, current analytics paradigms might be disrupted by machine learning (ML) or predictive modeling.

So how will insurance companies adapt to the rise of connected vehicles?

First of all, the industry will need to take steps to adapt their technology infrastructures, strategies, and architectures to best suit the connected car ecosystem. Next, investment will be needed to incorporate analytics and mobile sensors into insurance products, digitizing customer interfaces, expanding the consumer data pool, and develop internal digital knowledge and capabilities.

This has in some ways opened the door to discovering new opportunities to deliver new innovative products and services that can enhance the customer’s experiences.

Connectivity Creates New Opportunities

The adoption of connectivity and connected cars was embraced by some insurers several years ago. For example, Progressive launched Snapshot (in 2008) which is a user-based insurance program that offered discounts up to 30%, depending on how well customers drove.

With over three million customers having signed up for the service, Progressive was able to collect a massive amount of data from onboard diagnostics devices (OBD-II) that were installed in the cars of policyholders. When this information was combined with other data, the company was able to better assess personal and regional risks.

Check out how we built a robust OBD-II solution for the University of Michigan - Transportation Research Institute

Other companies are experimenting with telematics-supported UBI programs to influence driver behavior or to increase claims processing efficiency. This, in turn, can lower losses caused by fraudulent claims. Data companies are also now able to develop dynamic risk profiles that can have a direct impact on insurance premiums and company revenue.

This is a benefit to consumers as better risk assessment will translate into more accurately priced insurance premiums as well as incentive-based pay-as-you-drive (PAYD) programs.

As the popularity of these technologies and business models gain traction, traditional insurers will face disruption. But these disruptions won’t be a bad thing as they present far more opportunities than traditional insurance models.

For example, there’s an opportunity for insurance companies to inform their customers when it’s the right time to sell their cars. Further, they can also offer coaching to help drivers save fuel and drive more safely.

In addition, they can offer services like predicting maintenance needs, locating cost-effective gas stations, and emergency driver assistance. Allstate already offers the latter as they provide gamification software to enhance the customer’s driver skills.

Offering additional services will move the insurance industry from just selling insurance products that only offer a single customer touch point (each year) to insurance-based service hybrids with daily touch points. By providing additional services, insurers can also improve engagement and enhance customer loyalty.

Connected-Car Ecosystems Requires Collaboration

Insurance companies have to figure out whether to make these additional products themselves, buy new products or services, or establish partnerships with third-party vendors. A critical factor in this processes is identifying the company’s existing and projected technology capabilities.

Regardless of which avenue companies choose to go down, insurers will need to make a significant investment in information technology. Specifically, they have to make significant investments in the following areas:

With every release of new applications, the connected car ecosystem is quickly becoming a reality. Further, innovations in the field are only limited by the imagination as multiple sources of profitability are yet to be explored.

This means that insurance companies need to move quickly and build appropriate IT infrastructure, assets, and capabilities. It’s a market that’s evolving rapidly, so it’s better to be a company that’s doing the disruption than being the company that’s being disrupted, isn't it?

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Andrew is our IT storyteller and copywriter. His current undertaking is big data analytics and CSS as well as digital design and branding. He is a contributor to various publications with a focus on new technology and marketing.

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