It is still early in the evolution of collecting and using mobile data from drivers and their vehicles, but many large industries with huge stakes in the outcome are participating and paying close attention.
The Current Conundrum: Many Contestants, Few Prizes
Formed in 1995 as a collaboration between GM, Electronic Data Systems and Hughes Electronics, OnStar was almost certainly the grandfather of the connected car. In 2002, Progressive insurance and General Motors Acceptance Co. partnered to introduce the first usage-based insurance (UBI) program in the U.S. Using GPS and cellular phone tracking capabilities, the Snapshot program offered discounts to low-mileage drivers on the program. What followed – and continues to evolve exponentially – was an explosion of business models, technologies and programs for use in the insurance and commercial fleet industries, with applications ranging from underwriting, claims and fraud to accident management, driver safety and behavioral modification.
While the earlier and still prevalent telematics programs rely on a small communications device connected to the vehicle on-board diagnostic (OBD) port, the proliferation of smartphones has enabled the elimination of these device costs and provided more convenient mobile solutions. In addition, car makers have begun installing software and communications in new-model vehicles, which further simplifies the user experience and expands program capabilities, integrating them into dashboard screen interfaces. By 2020, more than 90% of new cars will transmit telematics data, according to the Auto Care Association. More recently, intermediary technology providers known as telematics service providers (TSPs) have emerged to offer consumers and insurance carriers turnkey connected car programs, and several industry information providers have introduced telematics data exchanges (TDEs), which consolidate drive and vehicle data from a variety of car makers and provide insurers with uniform, normalized data.
This connected car evolution from OBD to embedded to mobile to hybrid is enabling more than just new insurance products; it is transforming the business of auto insurance. Automotive original equipment manufacturers (OEMs), insurers, TSPs, telcos and information providers all seek to monetize the exploding streams of connected car data – but no universal or dominant models have emerged as yet.
Secret to Success: Partnerships
The emergence of insurtechs, with their innovative application of new technologies to solve age-old insurance challenges, along with the implied threat of those solutions to traditional insurers has dramatically changed the way insurance executives think about partnerships. Today, strategic technology-centered partnerships are enabling insurers to transform their core processes and expand into more markets than ever before. In fact, many of the largest carriers have formed or joined dedicated insurtech venture capital funds and accelerators, whose portfolios potentially represent a double win, financially and in process improvement.
In the area of the Internet of Things, of which connected car is a major subset, inter-industry partnerships and alliances are critical – indeed mandatory – for success. Even one-time competitors are seen to collaborate where both parties do better together than separately.
Partnerships between ecosystem participants are inevitable, and desirable – with each segment leveraging its core strengths and expertise in support of mutual business objectives and their common customers. In the case of connected cars, those are the owners, drivers and passengers as well as the policyholders.
See also: 5 Steps to a Connected Car Strategy
Aligning Interests by Focus on the Common Customer
By focusing on the common customer, each participating segment partner can “win,” defined as achieving their primary strategic objectives. In the case of auto insurers, winning means improving and strengthening the customer experience and relationship while improving underwriting and operating results. For car makers, winning means lowering the total cost of ownership for car buyers – a fundamental strategic objective that has recently emerged – and reinforcing brand loyalty with car buyers and owners. Furthermore, lowering total cost of ownership is a strategic objective that auto insurers embrace, as well.
For intermediaries such as TSPs and TDEs, winning means adding significant value to existing relationships with insurance company clients and adding new customer segments and product revenue streams to their businesses while lifting and reinforcing brand recognition across all segments.
And let’s not forget one more important reality – every connected car program, regardless of the participants, requires acceptance by the same common customer.
Solving the "Many to Many" Challenge
With the increase of advanced driver-assistance systems (ADAS), connected cars and the emergence of autonomous vehicles, data experts, along with OEMs, insurers, brokers and agents, are joining forces to bundle whole-life vehicle costs together to offer new mobility solutions such as car subscriptions, car sharing and other short-term vehicle use models to appeal to changing consumer needs.
The challenge presented by this proliferation lies in the wide range of devices and the variations in hardware and software technologies that are broadcasting data in non-standard structures. This lack of uniformity presents what LexisNexis Risk Solutions calls the "many-to-many" challenge. The torrent of inconsistent data from disparate data sources presents numerous serious impediments to consumer program portability and driver scoring calculations and will eventually impede market confidence and growth of these programs.
How this data is managed and converted from raw driving data into reliable rateable factors for use by auto insurers is crucial in determining how OEMs and insurers will collaborate to support the future of connected car programs for consumers within both insurance and auto industries.
The solution that presents itself is a central hub that is capable of ingesting, cleansing and contextualizing driving data regardless of data source to resolve the many-to-many problem. With access to the entire insurance market for both insurers and OEMs, the potential exists to ultimately transform the mobility-insurance market into one connected ecosystem to the benefit of all participants – including consumers.
Telematics Data Exchanges to the Rescue
As connected car programs continue to evolve, the challenge insurers will increasingly face is that the number of sources and collection methods for telematics data will continue to grow as programs evolve and all of the resulting data will need to be standardized. Telematics data exchanges, such as the LexisNexis Telematics Exchange, are able to help insurers and OEMs navigate evolving technology by providing them with normalized data and advanced insights that are most relevant in growing their business.
To succeed, these telematics data exchanges will have to be developed and managed by trusted, well-established information providers that already do business with a majority of insurers, that have a deep understanding of the automotive industry, that have sophisticated and powerful data processing assets and that have a culture of innovation as well as a corporate commitment to data privacy and security. When you consider all of these qualifications, there are really only small handful of companies that qualify.
See also: Advanced Telematics and AI
Telematics data exchange providers enable insurers, auto manufacturers and drivers to benefit from the evolution of UBI programs. These platforms provide insurers with driver scores through a single point of entry and leverage existing system integrations, regardless of each customer’s data collection preference. They also enable OEMs to collect and seamlessly integrate vehicle data into insurers’ existing UBI programs. In addition, auto manufacturers can gain valuable insights, improve return on investment (ROI) and access data analytics expertise that provides them speed to market to provide value-added products and services to their customers. OEMs will also have a practical opportunity to encourage safe driving and enhance customer ownership experiences.
In summary, professional management of connected car data and the wide variety of telematics solutions will enable consumers to confidently share their driving scores across a range of carriers and maximize the benefits of participation in current and future programs.
In addition, it will allow the claims process to evolve from its current state to instant crash notification, touchless claims and eventually to claims mitigation. Telematics data exchanges will help to build customers' loyalty to their chosen carrier and OEM brands. Additionally, a telematics exchange will enable participants to innovate and quickly execute by providing the vital ingredients and processes required to fast-track transformation at scale and deliver real value to customers. Successful telematics exchanges will bring together OEMs and insurers for the benefit of consumers in their seamless digital lives.
The authors wrote this article in the run-up to the Connected Claims USA Summit in Chicago, where both spoke this week.