Insurers Tread Warily Among Connected Car Tech
Looking at the auto technology that will work best for tomorrow’s insurers, explored by Eric Volkman.
As the auto industry goes, so goes the auto insurance business. As everyone visiting this web site knows, the auto industry is zooming forward into a future where our cars will do the driving for us. Vehicle making is becoming an increasingly fluid and fast-moving environment. It’s not only the car manufacturers that will have to stay on their toes; the vehicle insurance business must rapidly adjust to the new reality as well. It’s also going to have to stay on the bleeding edge of today’s auto technology.
This will be very much to its benefit, believes Dr Ben Miners, vice-president of innovation at Canadian connected car solutions provider Intelligent Mechatronic Systems. He says that both personal and commercial lines of auto insurance aren’t profitable now owing to factors such as a higher volume of cars on the road and more distractions for the driver. Miners said, there is “improvement in personal auto loss ratios – especially for those who have embraced telematics as a means of improving the precision of underwriting and reducing frequency and severity by helping to condition the driving behavior to be preventative of accidents/claims.” Miners added that the situation is also getting better for commercial lines insurers.
Better and more widespread technology isn’t the only reason for this, of course, but it’s playing a starring role. Cutting-edge assisted driving features such as automatic emergency braking and lane departure warning are making vehicles safer and, thus, less risky to insure. Meanwhile, usage-based insurance (UBI) is helping insurers more accurately determine the appropriate level of risk.
“The latest enhancements to vehicle insurance telematics improve the precision of risk assessment, improves driver safety through behavioral change, and reduces the cost of the claims process,” says Miners’ colleague at IMS, senior director of project management Adam Rogers. Roosevelt Mosley, principal and consulting actuary at Pinnacle Actuarial Resources in Illinois, added: “Anything that helps reduce the frequency of accidents can help improve loss ratios. Therefore, to the extent that current vehicle safety technology can help do that, the loss ratios would improve accordingly.”
Naturally, there is a catch. “However, the other side of this is that when cars are involved in accidents, they are more expensive to repair owing to this technology,” Mosley said. “So, the decreases in frequency can be offset by increases in the cost of repairs. At the point the decrease in claim frequency is larger than the increase in severity, loss ratios would theoretically improve.”
One piece of technology contributing to the increased cost is vehicle video recording. This has lately been a common element of vehicle feature sets. In spite of the expense, it’s a positive for the insurance industry, not least because it cuts down on that old insurer boogeyman – fraud. “The wealth of data available through video sources is valuable for forensic analysis, and post-crash reconstruction, both of which are valuable to insure the cause of the crash can be reliably and objectively determined,” says IMS’s Miners.
Video recording systems currently being installed in cars are fairly rugged, with detailed resolution – this isn’t your grandfather’s grainy surveillance video. As such, a good system not only has value to insurers and their clients but also the authorities; police could theoretically use the footage to determine who’s at fault in a serious accident.
Further down the road, when autonomous vehicles start to prowl our streets, video can be used for diagnostic purposes. Automakers and the solutions providers that help build their autonomous platforms could draw on video recordings and other telematics data to improve and fine-tune their systems.
Technology can also help with another problem that insurers have traditionally struggled with – customer retention. After all, there’s little brand loyalty in the insurance game; as vehicle owners, we tend to base our policy decisions on price, level of coverage, and claims response. If a rival insurer comes to town with a better offer in at least one of these categories, we’re tempted to jump ship.
If insurers harness their tech to bring down those premiums and improve a customer’s driving habits, retention becomes easier. Care is needed here, though, because the policyholder can be a touchy beast. “The issue with consumer reaction has been that some consumers may disagree with the telematics evaluation of their driving habits and the resulting premium impacts and, if this is the case, this can actually have the opposite effect,” says Pinnacle’s Mosley.
All of these challenges have to be addressed in the midst of the current 100mph race of the connected car. Vehicle hardware and software is improving and upgrading on a constant basis. Insurers need to at least keep pace with this, or risk getting left in the dust.
