Could carmaker data turnaround the fortunes of UBI?

General Motors’ (GM’s) partnership with Progressive Insurance is close to a year old, with the first pilots rolled out mid-year. In Europe, BMW has partnered Allianz partnered since 2009, and the two companies recently renewed the agreement with an eye toward a global roll-out. Renault-Nissan has a data partnership with Allianz that allows auto dealers to offer consumers a Renault-branded pay-how-you-drive or pay-as-you-drive insurance policy. On paper, data partnerships between carmakers and insurers make sense. But the devil is in the details.

GM’s programme lets buyers of new cars with OnStar opt into driver assessment using the embedded telematics control unit. After 90 days of driving and possibly receiving improvement tips, drivers can again opt into sharing the resulting Smart Driver Score with Progressive in the hope of getting a discount on insurance. OnStar also provides mileage data to State Farm Insurance and Liberty Mutual.

Greg Ross, director of business development and alliances, Global Connected Consumer Experience for GM, says the programme is about customer satisfaction. “We’re in the car business and we want people to be glad they bought the car they did,” he says. “If I can help you save money on insurance that should be a good thing.”

That’s been the basic value proposition to drivers since the beginning of usage-based insurance. And yet, UBI penetration has stalled.

“Every year, the insurance industry says this is the year we get decent mass-market penetration but it’s still lagging behind most forecasts,” says Lee Colman, head of connected car at research firm SBD. Aside from a lack of consumer awareness and acceptance, SBD has found that UBI doesn’t work out for insurers.

Not only are hardware and management costs higher, a still-unpublished SBD report found that there is not a significant reduction in claims frequency reduction, nor a link between driver coaching and a lower risk profile.

Manufacturers in the middle

Ross points out that allowing OnStar to step in between insurers and drivers can reduce consumer concerns. Drivers don’t want to share driving behaviour with insurers until they know they have a good score. Says Ross: “We, instead, invite customers to create a score that’s just for them. We commit it won’t go anywhere unless they want it to.”

The pilot only launched mid-year, so Ross could not share information about take up. For starters, GM is providing only standard UBI data but it does have the ability to deliver much more data in newer models. It also may explore how many additional data points it can pull from its installed base, Ross says, although OnStar got flack when it wanted to continue to pull data from OnStar units with lapsed subscriptions.

Reducing costs of UBI

SBD’s research shows that, while UBI and driver scoring doesn’t seem to reduce claims or increase risk profiles, data partnerships with carmakers can change the value equation. Says Colman: “Our analysis indicates that if the carmaker data can be used, rather than the insurer having to bear the cost of hardware, there is enough upside in the UBI product to either break even or – if the insurer is managing its CRM and the cost of claims adjustment well – there can be a marginal improvement in mass-market margins.”

There’s a bit of incremental revenue to be gained by manufacturers when they sell this data to insurers, according to Greg Basich, senior analyst for the AMCS Automotive Practice of research firm Strategy Analytics but not enough in itself to make these programmes worthwhile. “Relative to the overall revenue of an automaker, it’s not insignificant but not huge,” he says.

An automaker would require a large volume of customers with vehicles that have hardware installed and are active subscribers. Among them, a significant number of them have to opt into sharing driving data. And then, according to Basich, the price for the data is not particularly high. So, even though a carmaker is selling millions of vehicles, it might net an extra $1M.

Ideally, according to Lawrence Karp, insurance telematics practice lead at Accenture, global carmakers could offer car buyers a choice of insurers available in their regions. While Verisk Insurance Solutions and ATG Risk Solutions are working on data exchanges that would let opted-in consumers send their data for participating insurers to use, he thinks this will only work if the data exchange is global. “They’re not going to industrialize a programme from end to end with a small player,” he says.

Get sexy

Carmakers and insurers have a bigger incentive for data partnerships than merely incremental revenue or cost savings, Karp adds. “Insurance is not a sexy play but it helps OEMs and insurers make their offerings stand out a little more and become less of a commodity.”

Eventually, they could build a larger “affinity ecosystem,” he says, where customers get incentives for actions like visiting an in-network shop for repairs. “Both OEMs and insurers value an always-on relationship with the consumer,” he says.

But first, they have to make consumers value the deal. So far, that’s been hard.