Automotive disruption is making its way to the insurance sector

While the idea of native car insurance—insurance policies offered and managed by the automaker itself—has been circling the auto world for years, new technologies could turn that idea into reality sooner rather than later. 

The role of increased connectivity and data collection has created new opportunities and revenue models for automakers and mobility companies to enter the insurance business—and now, some automakers are getting serious about joining Tesla, the first to offer “native” insurance to California drivers, in this dramatic market disruption and potentially lucrative realm.

In late 2020, GM and OnStar announced a partnership that included an auto insurance option for consumers that would offer fair, secure, and convenient policies and complement the entire buying experience. With an existing foundation of safety, real-time support, and remote diagnostics, GM and OnStar have good reason to develop a service platform that flips traditional insurance models upside-down.

For those listening closely, this announcement also signaled a substantial upcoming change and a new competition space throughout the entire mobility space—including suppliers, dealers, insurers, fleets, technology, and software providers.

Automakers monetizing data

For years, data aggregation has been the core of the telecommunications world, and those who continue to make new in-roads are going to come out ahead. One of the most significant ways automakers can develop this as a viable business model is rooted in this increasing transition to software and data collection.

As technology continues to drive the design and function of cars, so does the potential to better understand consumer habits, attentiveness, and risks. Computer systems can already track everything from hard braking and hard acceleration to speeding and seatbelt usage. As automakers collect this data, it can eliminate the traditional insurance demographic factors such as age, gender, residency, and credit history currently used to determine insurance rates.

This scenario becomes even more apparent as the advent of autonomous vehicles becomes closer to reality. For instance, Tesla understands that consumers who use self-driving features are 6X less likely to be involved in an accident. Here is just another example where organizations like Tesla are leveraging technology data and incorporating it into the insurance market.  

How insurance companies are adjusting

Many auto insurance companies have already begun to offer and integrate usage-based products and services to help customers save on premium costs by tracking driver behavior. They often rely on the telematics and diagnostic systems within the vehicle to obtain and collect useful data.

Beyond that, the role of safe vehicles, new vehicle design, and new sources of risk and liability is already impacting auto insurers. Yet, as the automotive sector continues to develop safer and self-driving vehicles, insurance agencies are forced to reinvent the infrastructure and find new ways to keep business models relevant.

Not only will they have to adapt to automaker offerings, but the new “mobility ecosystem” presents an even more significant challenge. When we look toward consumer trends, it is clear that the attitude and dependence on shared vehicles, rideshares, and public transit are here to stay—especially in urban environments.

Combine that with the role of autonomous vehicles and delivery services, it is no longer just a question of who needs insurance, but also what function does that insurance serve? As a result, insurance companies will most likely look to move away from individuals and toward more commercial buyers. This will be a slow but gradual shift as the mobility ecosystem continues to evolve.

Partnerships

One way that I can foresee a positive change for both industries is in forming Automaker-Insurance agency partnerships. In the case of Toyota and Nationwide, these partnerships are already being established, helping to benefit consumers and enterprises. 

As insurance companies adapt to the change in buyers, fleets, and more accurate data, partnering with automakers can help them gain stability. It will set them up for long-term success and diversify their financial opportunities, especially as automakers have increasingly accurate insights into the buyer’s behaviors while driving.

Not only is this the case with insurance companies, but software and other third-party companies can also find new in-roads when it comes to data. As more connected systems for cameras, GPS, mapping, and sensors are required for safe driving, just the traffic and road condition data become very valuable to road commissions and city planners, to name only a few. 

Stay Alert

Simply put, connected cars and big data continue to pave the way for automakers’ new financial opportunities, creating a ripple effect and disruption across industries. Whether insurance and software companies are ready or not, automakers are finding ways to leverage existing and new data systems to help consumers and the bottom line.

To survive this next wave of shake-ups, companies have to stay alert to these emerging trends. They need to develop a strong understanding of how the new mobility ecosystem impacts business models and how they can adapt to it with strategic plans and integrations.

OEM suppliers and automakers must develop new ways to leverage big data and connect it to a product or partnership that falls within this unique footprint. Those who can find a way to be even more connected can also expect to arrive at a more financially successful future.