Carmakers hold the keys to UBI monetisation

After the long wait for the perpetually imminent market breakthrough of insurance telematics, insurers and analysts have now pinned their hopes on the advent of the connected car. The bouquet of services enabled by in-car connectivity, they reason, will present a golden opportunity for insurers and carmakers to cast a wider market net.

This is seen as a win-win-win solution for every party involved in the UBI policy, since the array of sensors in the connected car will generate rich data on driving behaviour that, with the explicit agreement of the customer, can be used to calculate risk and offer better discounts on policies to qualified drivers, without the added expense and inconvenience of a data-capturing telematics device or a smartphone. Now, the question is: how do insurance companies and carmakers best operate the technology to create value for their customers and a viable revenue stream for themselves?

According to Marijan Mumdziev, CEO of Amodo, a UBI platform provider currently running more than 20 UBI projects worldwide, the market strategy depends on who is selling the product. “One of our customers, the biggest car distributor in Europe, has a go-to-market strategy that is very different than the one being launched by an insurance company alone,” he explains. “The reason is that the car distributors have a different ecosystem and they can go much easier with the devices pre-installed in the cars that also include remote diagnostic services and extended warranty services and so on.”

Insurance companies that attempt to tackle carmakers on their own turf stand no chance, he says. “Insurance companies at the beginning were extending the usage of connected car technology too wide, almost pretending that they are the car manufacturer,” Mumdziev says. “And going head-to-head with the car manufacturers they would lose in any case. Those that decided to go down that path are losing it. Car manufacturers are better positioned to win that game because of their ecosystem, distribution channels, customer base, other services they can revolve around and the possibility to bundle it to the customers purchasing the car.”

He says that carmakers that purchase Amodo’s UBI solution are usually big enough to either have their own financial services or an insurance company with whom they have formed a partnership. “The big ones are going to form partnerships on a global scale with an insurance partner that can follow them in their footprint, with companies like AXA or Generali or Allianz. Not only that, they can immediately achieve certain economies of scale, better prices and so on.”

Insurance companies without a global reach must find a different strategy. “What we have seen that works the best [for local or regional insurers] is leveraging the sales agent network, which is much better than going with cold acquisition from the very beginning through a marketing campaign,” Mumdziev says. “It’s a very costly game. It takes time until you gain critical mass. Through a project we are running, we have seen that those insurance companies that have started by distributing UBI policies through their sales agent network are growing 10 times faster than customers that started going directly on the market through marketing campaigns.”

James Hodgson, industry analyst at ABI Research, says that insurers are better off today working with platform vendors than carmakers. “[Insurance companies] obviously want to be as open as possible, so partnering with a platform vendor is better [than with a car manufacturer]. They have to understand that, depending on what OEMs are willing to give them in terms of data, you’re not going to have the same level of insight from one consumer to the next.”

The problem, he explains, is that most car manufacturers are not willing to share enough of the driving data. “Often these [connected] vehicles haven’t been architected in such a way so that the data can be easily accessed,” Hodgson says. “That’s why, for some vehicles shipping today, you have to get a black box to have a UBI policy on them. I was speaking with one UBI provider who works with black box, dongle and partners with an OEM as well, and the quality of data they can get from black box solutions is better than what the carmaker is willing to provide them. The potential is there but often the OEMs aren’t thinking far ahead enough to make the data available for UBI purposes.”

One reason is the fear that privacy concerns will scare consumers away. “When carmakers share data, the thing that keeps them up at night is privacy,” Hodgson says. “They’re just making baby steps in the field of sharing anonymised data, never mind providing a specific identity, a specific user, and then nominate whether they’re at fault in an accident. That’s a whole different level of data sharing from an OEM point of view.”

Hon the other hand, Mumdziev says that he has found that most consumers have no qualms about sharing their driving data. “The ceding of driving behaviour data to a third party no longer makes consumers nervous,” he says. As an example he recounts a UBI product where customers were given two options: they could have opted in anonymously or they could have signed in with Facebook or other identification data. “From the very beginning, 92% of the people, even before testing the program or the value of the product, gave their identification data, either through Facebook or their email address, although it was not required.”

Another problem, Hodgson says, is that the connected services available to consumers today are, by and large, not regarded as essential to the life of the car. “Connected services are seen today as nice to have by consumers – you’re safer, more secure and, maybe, to entertain them,” he explains. “Going forward, however, better connectivity and connected services in cars are going to be mission-critical functions. As vehicle functions in cars become more software-centric, over-the-air updates become more essential and having that ongoing connectivity is not about giving the customer a better experience – it’s something that has to be there for the sake of maintaining the vehicle as part of its life cycle. This philosophy change for carmakers is taking place gradually. There are a number of legacy services which can take advantage of that trend, and UBI has the potential to be one of them.”

[Ins.Mortkowitz.2017.09.28]

Connected Vehicles