Connected cars as the game-changers in UBI

Persistently connected cars, already coming into the market, provide much more data that can be used by insurers for evaluating risk. But they’ll shake up the UBI industry for several reasons, according to Nino Tarantino, CEO of Octo Telematics North America.

First, the sheer wealth of data will allow for greatly expand the services that insurers and vendors can offer. Already, the industry is not taking advantage of the data that is currently available, Tarantino says. But that may be changing.

“In meetings with insurance companies, I see more people from marketing,” Tarantino says. “They see the opportunity to improve the relationship with customers, maybe by developing new loyalty programmes.”

Providing feedback to help people drive better has already been shown to be highly effective. A study of its customers in the US showed improved driving scores for 40% of participants after four or five weeks.

In addition, he sees an opportunity to use today’s data, as well as that to be available in the future, for social benefit to communities and municipalities. For example, smart cities could use driving data to guide road-building projects.

Cars in the IoT

Second, new data sources, especially the IoT, will continue to come into the mix. Several companies are mixing in other data sources, including road sensors, weather information and wearables. Tarantino says: “We are looking at wearable devices to understand human reactions to driving situations, especially during a risk event.”

Adding in data from social media via the smartphone can help the company understand how to reduce distracted driving, he added.

IoT data will also connect the home and the car. The familiar scenario of the car signalling the home to unlock the door and turn on the heat as it approaches is just one example.

These home device systems employ multiple sensors to monitor the status of the home and the risk factors that could affect insurance. Systems include sensors to monitor water leaks; intrusion; smoke detectors and power peaks in energy consumption. They also allow the car speak to the home device as the driver approaches so it can unlock or adjust the temperature.

Carmakers, or their customers, will own the data

While carmakers are still pondering how to handle data ownership and privacy with their customers, it’s clear that connected cars shift data ownership from the insurer to the car company. “OEMs will not share the data cheaply,” Tarantino notes.

For insurers, this will mean less flexibility in what kinds of driving data can be collected, as well as higher costs if they have to pay carmakers. On the other hand, they won’t be burdened by providing and keeping track of UBI devices. Tarantino says: “The question is how much they can save if they don’t own the data but get it from a different source. They will lose some of the control, but maybe the cost is lower. I don’t have an answer about that.”

It’s possible that, if the manufacturer data quality is high and the cost is lower than the combined costs of UBI programmes, insurers could actually benefit by focusing on value-added services instead of on data collection.

From supplier to services

Finally, the shift to factory-installed connections requires insurers and vendors to work out new business models. Just as automakers such as Ford have begun to position themselves as providers of mobility services instead of mechanical equipment, UBI vendors need to take a more strategic approach to their offerings, Tarantino thinks. “We are a data company,” Tarantino says. “We are all about data and analytics. Our goal is to use the intelligence we can produce out of this data not only for insurance companies but also for auto makers and fleets.”

That said, Tarantino definitely thinks that the business must evolve. For example, it will need to change its business model to include paying for data from carmakers instead of generating data with its own hardware. “Because of all our experience in crash analytics and matching this with external, contextual data, we have the possibility of finding other opportunities,” he says. He foresees providing data and analytics to Tier 1s, for example, tire manufacturers.

When it comes to automakers, the data could flow two ways. He adds: “We have intelligence and analytics they don’t have and a big database that they don’t have.”

The rise in autonomous vehicles will create new opportunities, Tarantino believes, with expanded opportunities. “In autonomous cars, there will be a need for regulation and monitoring by the government, and there will be other entities that will be interested in having the data and analytics. There will be money for data and intelligence.”