OEMs and insurers: Time for an open relationship?

OEMs and insurers: Time for an open relationship?

The relationship between insurers and car manufacturers was once of peaceful coexistence. Sure, there was the occasional tension over whether immobilizers or anti-crash systems should become standard equipment in cars. But, by and large, the two sectors got along and even collaborated on the occasional joint study into car safety.

The rise of usage-based insurance (UBI), which uses driving behavior and other usage-based data to price insurance risk, threatens to complicate things. Car OEMs with embedded telematics systems in their cars are now in a position to control access to the data. And there is also anxiety, particularly in Germany, that they will try to take over the insurance business altogether.

“Some insurers are worried that car manufacturers will try and become insurers because they have direct access to pricing data,” says Ofir Eyal, a principal management consultant in the London office of The Boston Consulting Group. He links it to a period in the mid-2000s when certain automobile manufacturers started to offer car loans. “The launch of loans from OEMs took half of the market share from banks – they were very successful.”

In many ways, all that is missing for OEMs to succeed in car insurance is a credible business model, something car manufacturers are studying, according to Eyal. “They’ve really woken up to the fact that there is financial gain to be derived from telematics,” he says.

Anxious Germans

German auto insurers are particularly anxious. Germany has one of the world’s highest concentrations of car manufacturers. And, at the moment, it’s the car manufacturers who have the power in negotiations. The concerns are, in fact, so high that “some German insurers are trying to secure their position by devising their telematics strategy to respond to any moves by the car manufacturers,” Eyal says.

In the United States, the anxiety is not so much about OEMs trying to take over the auto insurance business as it is about overcoming the wide range of data-collection systems in use. The three big American car manufacturers – General Motors, Ford and Chrysler – all have very different telematics devices and standards. “This makes it difficult for insurers to connect directly with the car manufacturers at the moment,” Eyal explains.

When it comes to UBI, there are essentially two possible avenues for car manufacturers trying to make use of their privileged access to driving data: providing insurance for people who have just bought a new car and having first notification of an accident, so they can channel a vehicle into their company’s own garages.

“Insurers who want to have access to new car buyers may have to agree to have the cars repaired at the dedicated workshop because of the privileged access that the OEMs will have,” Eyal says.

(For more on UBI business models, see Telematics and the business case for UBI and Telematics and UBI challenges for insurers.)

Will OEMs make good insurers?

But Dave Chronowski, a product manager for connected services solutions at Ford, insists that insurers, at least in the United States, don’t have anything to worry about. He certainly doesn’t think that OEMs would make good insurers.

“We learned our lesson back in 2000,” he says, referring to when Ford tried to vertically integrate all elements of the automotive experience, from payment plans to junk yards. “It caused us to lose our focus. … In the end, we want to build cars and make our automotive customers happy – the way to do that with insurance telematics is to partner with insurance companies to lower the cost of vehicle ownership.”

Eyal also has his doubts that OEMs will jump on the insurance bandwagon on a large scale. “Car manufacturers are unlikely to be cheap as underwriters for a large number of clients, and having competitors who can quote less would be very bad for their brands,” he says. Still, he does allow there could be exceptions, pointing to the fact that Volkswagen has an insurance license.

Partnering up

Partnerships appear far more likely. Chronowski has recently seen renewed interest in forming partnerships from U.S. insurers. “This past year more insurers seem to be getting involved in telematics, realizing that [aftermarket] device-driven strategies aren’t the way to go,” he says. “They don’t want to deal with dongles, and they don’t want their customers to have to deal with dongles.”

The data recorded by dongles tends to be less reliable than data provided by embedded technologies. And the fact that dongles can be easily installed also means that they can be easily uninstalled, thus elevating risk of driver fraud.

“Car manufacturers get data that is of interest to insurance companies, and [they] will be willing to share it, the benefit being that mutual customers qualify for lower [insurance] rates, and it lowers the cost of vehicle ownership,” Chronowski says. “As vehicles get more connected, there’s going to be more data available, which is going to increase the overlap between what insurers need and what we have available to us.”

But these partnerships are unlikely to be exclusive, according Chronowski. “To cover 50% of the car insurance market, you would need to deal with 10 different insurance companies, and to deal with 50% of the automotive market, you would need to deal with 10 different automotive companies,” he says. “If you’re going to develop any kind of program, you’re going to have to deal with multiple insurers, and insurers are going to have to deal with multiple OEMs.”

(For our coverage of Insurance Telematics Europe 2013, see Insurance Telematics Europe 2013: Day OneVideo: Insurance telematics and the smartphoneVideo: Insurance telematics and the customer-centric approach and Video: Learning to walk before running with insurance telematics.)

Frances Perraudin is a regular contributor to TU.

For all the latest telematics trends, check out Insurance Telematics USA 2013 on Sept. 4-5 in Chicago, Telematics Brazil & LATAM 2013 on Sept. 11-12 in Sao Paulo, Brazil, Telematics Japan/China 2013 on Oct. 8-10 in Tokyo, Telematics Munich 2013 on Nov. 11-12 in Munich, Germany, Telematics for Fleet Management USA 2013 on Nov. 20-21 in Atlanta, Georgia, and Content and Apps for Automotive USA 2013 on Dec. 11-12 in San Francisco.

For exclusive telematics business analysis and insight, check out TU’s reports: Telematics Connectivity Strategies Report 2013The Automotive HMI Report 2013Insurance Telematics Report 2013 and Fleet & Asset Management Report 2012.

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