Tag Archives: automaker

Game Changer for Auto Telematics

Auto underwriting is no longer a “one size fits all” proposition, and technology – in the form of a telematics data exchange – is bringing a tailored approach to more effectively writing individual auto policies. The exchange is an accessible platform of driving information data provided by automakers, telematics service providers and Internet of Things providers. Through the exchange, insurers now have a single and efficient access point to data about driving information.

A telematics data exchange platform has the potential to transform relationships among insurers, consumers and automakers. The platform aims to complement existing solutions, also enabling insurers to bring their own usage-based insurance (UBI) models or other third-party models to the game.

With customer consent, insurers can review the driving history of consumers at point of sale and renewal of auto insurance policies. The exchange can also potentially help manage details of the automaker-insurer relationship, freeing automakers to focus on their core competency in developing advanced vehicles.

In the auto insurance marketplace, there are a few rules of the road:

  • Every insurer using telematics data in determining respective pricing must make corresponding filings with state regulators. As a licensed advisory organization with established filing procedures and government relations, the exchange has the potential to file UBI models and rating guidelines on behalf of insurers, providing faster time to market.
  • Although insurers retain the roles of underwriter and pricing specialist, the data exchange models provide an insurance score, one of the factors that insurers may use as part of their proprietary pricing and underwriting.

The telematics data exchange is a game changer because it brings benefits to insurers, policyholders and auto manufacturers. The power of data and analytics is being harnessed to bring a variety of benefits:

For participating insurers

  • Easy access to telematics data without significant investment in technology and logistical support
  • Improved customer satisfaction through fast, informed quotes at point of sale and renewal
  • Enhanced customer acquisition and retention through innovative UBI programs that potentially attract and retain safe drivers

For consenting consumers

  • Discounted insurance options for lower-risk drivers
  • Portable driving history for ease of insurance shopping
  • No need to plug in a telematics device or use a smartphone

For automakers

  • New revenue from connected-car data
  • Lower total cost of vehicle ownership, which can help boost vehicle sales
  • Additional opportunities for consumer engagement

As use of telematics technology gains acceptance and expands in the marketplace, is it any wonder the game is changing?

Assisted Driving Is Taking Over

The power of 35.

The Insurance Institute for Highway Safety (IIHS) estimates that automatic emergency braking and forward-collision warning features could curtail injury claims by as much as 35%. The California Department of Motor Vehicles estimates that in 35% of crashes the brakes were not applied. It is striking that these two numbers match.

These savings are not surprising. Automatic braking will avoid some accidents altogether. When an accident nevertheless occurs, automatic braking may greatly reduce the speed on impact. As a matter of simple physics, a reduction in speed results in an exponential reduction in the kinetic energy that must be absorbed in a collision. The formula, for those interested, is Kinetic Energy = 1/2mv2, where “m” is the mass of the vehicle and “v” is the vehicle’s velocity. Thus, a vehicle that collides at 30 mph has only one-fourth the kinetic energy of a vehicle that collides at 60 mph.

While automatic emergency braking and forward-collision warning are standard in some luxury cars and are available as options in many others, 10 automakers have agreed with the National Highway Traffic Administration and the IIHS to establish a time frame for making assisted driving features standard in all cars.

These are significant developments for insurers and for public policy makers.

For insurers, a 35% decrease in injury claims will result in a significant reduction in premium. This may be offset, at least in part, by an increase in the cost of repair for more sophisticated vehicles and the continuing increase in healthcare costs.

Public policy makers should contemplate the potential benefits of a 35% reduction in injuries and deaths because of assisted driving. At present, highway deaths in the U.S. account for 33,000 to 35,000 deaths per year (depending on how one correlates deaths to auto accidents). Over 10 years this is the equivalent to the population of some major cities-St. Louis, Minneapolis, Des Moines or the city of your choice. A 35% reduction would reduce deaths from 33,000 to 21,450. Every year, 11,550 more people would continue to go about their lives. Add a similar reduction in the more than 2.5 million injuries per year, and the public benefit is overwhelming.

These benefits only accrue as assisted driving features find their way into the fleet. This can be a slow process. It is estimated that electronic stability control, which has been available as an option for many years and has been mandatory since 2012, will not reach 95% penetration until 2029. This is because the average age of automobiles is a bit more than 11 years. Thus, anything that can hasten the adoption of these safety features (and others that are to come) benefits everyone.

Encouraging adoption directly implicates insurance. Auto insurance is one of the more expensive costs of owning a car. The cost of these safety features, either as an option or as a standard feature, is also an expense of owning a car. It is critical that savings from the lower frequency and severity of accidents be rapidly passed on to car owners in lower insurance rates, which will help offset the added cost and promote more rapid adoption.

Even when assisted driving features become standard, which will be some years in the future, the majority of the existing fleet may still be on the road for another 11 years or so. Passing substantial insurance savings to potential purchasers will make retiring the old heap more palatable.

Policy makers and regulators can play an important part in facilitating adoption of these safer cars. Laws and regulations that may impede the rapid distribution of insurance savings to insureds should be streamlined. Likewise, some driver-centric rating systems that may distort rates by artificially depressing the weight given to the safety of the vehicle should be reviewed.

Self-driving vehicles of the future have captured the attention of the public and the insurance industry. While many have been looking toward that day, enormous improvements in safety-critical technology are taking place right now. In a sense, the future is already here. Cars are taking over many safety-critical functions from their more fallible drivers. Insurers and policy makers must adjust.

Those interested in a lengthier treatment of this topic can read this article by Thomas Gage and Richard Bishop. And here is a Bloomberg article on a Boston Consulting Group study of the issue.

The Dangers of Standing Still

One of the most telling episodes of Kodak’s slide into bankruptcy was how it incorporated digital capabilities into its Advantix camera system.

Kodak spent more than $500 million to develop and launch the Advantix in 1996. The system capitalized on emerging digital capabilities— especially the digital sensors that Kodak engineers had invented two decades earlier—to capture date, time, shutter speed and lighting conditions to produce better pictures. The strategy culminated in the Advantix Preview camera, which allowed photographers to preview shots and mark how many prints they wanted. Kodak gave users no ability to save the digital images, however. The Advantix required traditional silver halide film and prints.

Advantix flopped. Why buy a digital camera and still pay for film and prints? Kodak wrote off almost the entire cost of development.

Kodak’s strategic blunder was not because of a lack of technological prowess; it was because of an inability to embrace business model innovation. Kodak was the market-leading photo film, chemical and paper business. It bet its future on “the hope that demand for digital images would sell more film.” As a result, Kodak protected its traditional business to the bitter end—until others leveraged digital to make film irrelevant.

Judging from recent comments by Carlos Ghosn, Nissan’s chief executive, we might one day read about how Nissan repeated the pattern of Kodak’s decades-long blunder and demonstrated the dangers of standing still during a period of industry innovation (like what’s happening in insurance).

Ghosn has championed his company’s efforts to develop autonomous driving technologies to allow cars to operate without human intervention. And, unlike some other large automakers (such as Toyota), Ghosn does not dispute the technical feasibility of driverless cars.

But Ghosn views the choice of semi-autonomous vs. driverless as a strategic decision—and he is clear that his choice is to use autonomous technologies as incremental enhancements to cars with drivers. As reported by the Associated Press via the New York Times: Ghosn said Nissan sees autonomous vehicles as adding to driving pleasure, and a totally driverless car is not at the center of the automaker’s plans. The autonomous driving Nissan foresees will assist or enhance driving. Nissan may end up with a driverless car, but that was not the automaker’s goal, he said. “That is the car of the future. But the consumer is more conservative. That makes us cautious.”

In other words, Ghosn’s strategy is to hope that the demand for autonomous technologies will sell more cars. Like Kodak, he is aiming to reinforce Nissan’s current business model rather than embrace business model innovation.

By being cautious, however, Ghosn risks emulating Kodak’s failure by waiting for others to leverage driverless technologies to make traditional cars irrelevant. He also risks ceding emerging business innovations to Google, Uber and others willing to make driverless cars their explicit primary goal.

The unanswered question is whether Ghosn, behind the scenes, is parlaying his technological forward-mindedness into strategic preparedness.

Carlos Ghosn need not shed his caution. But, as I previously argued, trillions hang in the balance. Given those stakes, has Ghosn hedged Nissan’s strategic bets in case the driverless “car of the future” comes more quickly than he expects?

Some argue that, of course, Nissan won’t be caught flat-footed even if driverless cars come sooner than expected. Look, for example, at its research partnership with NASA. But research is not enough.

A trap that market-leading companies fall into is believing that they can catch up if their initially cautious strategies turn out to be wrong. One lesson that Paul Carroll and I found in our study of thousands of large company failures is that it is very hard to excise denial from multiple layers of the organization—even after objective evidence argues for doing so. Another lesson is that, while it is possible to catch up on raw technical expertise, it is hard to catch up after yielding multiple product-oriented learning cycles to competitors.

Take electric hybrid cars. A former senior technologist of one of the big automakers told me his company considered but rejected hybrid electric cars before Toyota launched the Prius. The automaker was at first dismissive of the Prius and then surprised by its market success. It did jump into the market with its own offering. But, the technologist bemoaned, it has not been able to catch up. With each model, Toyota gets further ahead. The company ceded too many learning cycles to Toyota.

The same could be happening with driverless cars.

Nissan espouses caution about driverless cars. Whatever research is going on in its labs is mostly hidden from the public (perhaps to not confuse the market or provide succor to competing strategies).

Google, on the other hand, will soon release 25 prototype driverless cars onto the streets of Mountain View, with plans to launch 75 more. Google’s self-driving cars have logged a collective 1.7 million miles and are adding about 10,000 miles per week, mostly on city streets. Google has not cracked all the issues involved with driverless cars. It has, however, created the ability to learn faster.

Kodak, as evidenced by its own tongue-in-cheek marketing video, ended up play “grab ass” for years with digital photography. Late attempts to “get serious” were too late. Even now, 40 years after Kodak engineer Steven Sasson invented the digital still camera, Kodak still struggles to realize the potential of its IP portfolio.

Likewise, every market-leading department retailer of the 1950s and ’60s, such as Macy’s, Woolworth’s and Ames, thought it could contend with discount retailers like Wal-Mart if the need arose.

Only Dayton Hudson took the discounting business model seriously. Rather than watch and wait, Dayton Hudson formed a discounting business unit and unleashed that subsidiary to compete as hard as possible against the traditional business. That discount subsidiary was named Target. Of the more than 300 department-store chains in the U.S. in the late 1950s, only Dayton Hudson/Target successfully moved into discount retailing. Most of the others preceded Kodak on the path to bankruptcy.

Rather than following in the footsteps of Kodak and all those defunct department stores, Nissan should be more like Dayton Hudson.

Instead of just betting on caution, Nissan should also unleash innovators to create its own driverless offering and charge them with competing as hard as possible against its traditional business.