The Internet of Things (IoT) is revolutionising the automotive industry – pioneering the development of the connected car, driver assistance systems, road and traffic infrastructure and of course, in the future, the driverless car. Research in the US has shown a significant reduction in accidents between vehicles with, versus vehicles without safety systems, regardless of the cause i.e. improper lane change, unsafe speed, unsafe following distance or rear end collision.
As such the Internet of Things (IoT), connected mobility, telematics and the autonomous car are collectively driving insurance carriers to re-think their business and move away from traditional insurance models. Using On Board Diagnostics to monitor driving habits and send data back to the insurance company will ultimately lead to customised consumer choices that lower cost for the customer due to an increased ability to assess risk levels - in short, you can prove you’re a good driver that doesn’t get involved in many accidents every year and get a better offer from your insurance company.
Insurers have traditionally lagged behind other industries when it comes to utilising data to help digitise their business models – with interaction with customers being something of a rarity and data gathering being on a second hand basis i.e. reported accidents or speeding tickets providing visibility into driver habits. However, IoT and big data will change the way insurance companies operate, transforming underwriting and pricing decisions, enabling rapid response after accidents and providing forensic data for claims investigation.
German insurance company Allianz has a mobile app that allows customers to manage their contracts, declare their accidents and contact their local agent. However, the company also uses its mobile app as a platform to centralise its policyholders’ car information. While the app is free for customers, the company also has an optional contract allowing data tracking through the mobile app bundled with a hardware plug-in.
Allianz collaborated with the GPS company TomTom to create a device which the user plugs into the car onboard diagnostics (OBD) port. While the original use of this port was to allow repair technicians to easily understand issues relative to the car, Allianz use this port to allow data tracking which is then sent to the Allianz mobile app. The type of data extracted from the OBD is key for an insurance company, such as the number of hard brakes the driver has experienced, the frequency of over-speeding and the abruptness of acceleration, the manner in which the driver turns at an intersection and the period of time he/she is driving.
Syntel, a global provider of digital modernisation, information technology and knowledge process services, has key clients in the automotive sector, and CEO and President, Nitin Rakesh commented: “We ran a project with one of our clients in the automotive insurance sphere that had around 90 parameters to assess insurance risk. However, data gleaned from a car over a period of six months revealed that just three of the 90+ parameters could be used to assess 90% of the risk.
“The primary parameter was, quite predictably, average speed, but also key was average number of sharp turns and average number of sharp breaks. So, because the insurance company realised that they could use just three parameters to price 90% of the risk, they were able to create very customised policies - based on individual driving styles. So in future there will be a fairly dramatic shift in the way we look at car insurance.”
Last month around 400 senior level executives from across Europe gathered at the Connected Car Insurance Europe 2016 event in London to hear from industry experts such as Ageas, Carrot Insurance, The Co-operative, Department for Transport (UK), Insurethebox, MAPFRE, RSA, Thatcham and Transport Research Laboratory (TRL) about how the auto-insurance sector will need to forge new partnerships and embrace new technology to stay competitive in product development, through to reducing claims cost and frequency, customer engagement and underwriting decisions.
However, the IoT could also present a major threat to the insurance industry as the increase in road safety will naturally lead to reduced premiums. The power could shift completely into the hands of the consumer, who could potentially upload their driving data – model, mileage, credit score and driving record - onto the internet and invite insurance companies to bid for their custom.
In addition, at a recent seminar in London, Volvo chief executive Håkan Samuelsson stressed the danger that driverless cars of the future will present to auto-insurers. US research estimates that there will be an 80% fall in the number of car crashes by 2035 as a result of driverless cars, and even the accidents that do occur will have less severe consequences due to crash avoidance systems reducing the impact of collisions. All this will inevitably reduce the cost of car insurance meaning that the motor insurance industry will have to evolve or diversify into areas such as home or pet insurance in order to survive. Samuelsson commented: “Volvo believes the insurance industry will have no choice but to react to these seismic challenges to its existing business model by fundamentally restructuring - or face competition from new entrants into its market from technology savvy disrupting companies.”