Telematics in insurance has come a long way since pilot projects at the turn of the century required consumers to plug in, drive with, and unplug their own black boxes to transmit data. Not only has the black box technology advanced considerably, but there also are multi-use technology platforms installed in many new cars that can perform the functions required for today's usage-based insurance programs without requiring any additional hardware investment.
Praveen Chandrasekar is the research manager for automotive and transportation at Frost & Sullivan, studying the automotive OEM (original equipment manufacturer) market. He says that while much of his research traditionally has focused on navigation and infotainment, today insurance is top-of-mind for many of those manufacturers. OEMs are eager to incorporate insurance capabilities into their products because it helps demonstrate the value of their platforms to the end consumer, he explains.
"At the end of the day you need to show a value to customers, and optimizing insurance rates is an opportunity to decrease the total cost of ownership for a car," Chandrasekar says.
In a recent research brief, Chandrasekar posits that usage-based insurance comes in two tiers: One is a pay-per-mile charge, while the other is based on your driving habits. Increasingly, the latter is supplanting the former. Many OEM platforms have long collected the kinds of data insurers want for those kinds of programs, he adds. Now, it's just a matter of connecting carriers to that data.
"OnStar has been around for more than a decade collecting information -- it has the capability and the bandwidth to check how good you are as a driver," Chandrasekar says. "And today you see that data is used by State Farm and GMAC Insurance."
In the UK, Chandrasekar notes, OEMs Vauxhall and Citroen have helped clients Ingenie and C1 Connexion, respectively; develop insurance products tailored for young drivers. In the U.S., automakers also are tailoring products to a younger demographic cohort, and building the capabilities for usage-based insurance into those vehicles could help build brand affinity if members of that group want to leverage that kind of insurance product to save money.
"The Chevy Spark and Sonic are meant for a certain age group of drivers: young people who want a small car and keep the cost down," he explains. "Insurance is not their direct line of business, but if they enable it, it could help create a loyal base of customers for years."