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Connected Car Data: Moving Past the Hype

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.

Everyone Wins

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. 

The Problem With Telematics

When I attended the Insurance Telematics USA conference in Chicago earlier this month, I expected to see much more enthusiasm. I first wrote about Progressive’s venture into telematics all the way back in the late 1990s, and technology has improved so much since then that the telematics industry would surely be bragging about its breakout into the mainstream or at least predicting that one was imminent. The idea just makes so much sense: being able to track cars so that insurance risks can be determined very precisely for individual drivers, while even providing feedback that improves driving.

While the telematics technology is, in fact, stunning and while there are reasons for great optimism, what I found was not an industry brimming with confidence. I found an industry still searching for the right business model.

Until the industry solves that problem, progress will remain limited.

The Problem

The current approach to telematics is generally to install a device in a customer’s car for six months and have it relay the driver’s actions back to the insurer for evaluation. At the end of the six months, the device is uninstalled, and the insurer tells the driver what sort of discount, if any, she will receive based on her driving habits. A key point is that the issue at hand only concerns discounts; insurers have promised that they won’t raise rates if they find that someone is a worse risk than expected.

Think about the expense that goes into that model: manufacturing the telematics devices; installing and uninstalling them; and transmitting lots of data over a wireless network on which the insurer has to buy bandwidth.

Now think about the benefits. The prospect of a discount has attracted enough good drivers that, if all telematics-based auto policies were rolled into one company, it would be close to being in the top 10 among auto insurers in the U.S. Ptolemus, a strategy consulting firm, said there are 4.4 million cars in the U.S. carrying usage-based insurance (UBI). That’s a lot of cars. But there are 253 million cars and trucks in the U.S., so the market penetration of UBI is just 1.7%. Even in the main ballroom of the conference, full of ardent proponents, only about 5% raised their hands when asked if they had UBI.

Many customers turn out to not be that focused on discounts. They would prefer receiving free access to other services, such as roadside assistance — but what services customers want, how to bundle those services, etc. has yet to be worked out.

Even if some new package of free services drove 10 times as many people to buy UBI auto policies, telematics wouldn’t do much to make roads safer. Insurers are offering incentives to a self-selected group of drivers who are already among the safest on the road but, because insurers have decided they can’t raise rates for bad drivers, won’t be doing anything about the people who cause a huge portion of the accidents and, thus, the costs.

The current business model works — barely. The costs are too high, the offering to consumers isn’t right and the benefits to insurers are too low.

The Potential

Help is on the way from two main sources, which I have seen drive innovation in industry after industry since I started following the world of information technology almost 30 years ago. One source is what I think of as the power of “free.” The other is the power of a platform.

The Power of “Free”

The behavioral economist Dan Ariely has done all sorts of experiments about the power of free and found that it is almost magic. For instance, if someone does volunteer work and you decide to thank him by paying him a little, he will likely cut back on the work he does for you or even stop. Ariely reasons that people evaluate paid work in a hard-nosed way — how many hours do I work, how hard or skilled is the work, how much do others get paid for this work, etc.? — and evaluate volunteer work based on altruistic measures, such as the quality of a cause. If you have people evaluate the return from their free work on a paid scale, you’ll lose them. Similarly, he says, you can get people to do all kinds of uneconomic things if remove a paltry cost and make something free.

The power of free computing and communication has driven the upheaval of business over the past 30 years, spawning the wide adoption of the Internet, smartphones, etc. and all the business models that have come along with them. (Obviously, we still pay for computers and storage devices, but they are essentially free by comparison with where they were in the 1980s — a gigabyte of memory, which cost $300,000 then, costs about a penny today. Communication costs have gone way down and are headed toward something approaching free, even though telecom and cable companies will fight a rear guard action as long as they can.)

Now the power of free is coming to telematics, because the cost of acquiring information on drivers is heading toward zero.

In the short term, that will be because of smartphone apps. Although some say the data they generate isn’t quite as precise as that from sensors in cars, the apps are good enough for the vast majority of uses, and they cost roughly nothing. There isn’t any need to make a dongle for the car and install and uninstall it. Nor is there a need for the insurer to buy a wireless data plan for the car. The app can do most of the analysis on the phone and just send modest amounts of data back to the insurer, using the driver’s wireless plan.

In the long term, things will get even better as “connected cars” move into the market. These cars, already connected wirelessly to the Internet, will automatically generate the kind of information that insurers need. Insurers will be able to know what kind of a driver someone is at the moment she applies, rather than having to guess and then wait six months to know for sure.

The Power of a Platform

From the 1950s through the early 1980s, when IBM controlled the computer industry, the pace of innovation was glacial by today’s standards. Part of the reason was that the pace let IBM milk maximum profits, but part was also because IBM had to produce what software types would call the “full stack.” IBM had to develop the semiconductor technology that allowed for faster processors; design those processors; manufacture the processors; design and manufacture just about all the support chips, especially memory; assemble the mainframes; code the operating system; and generate the major pieces of application software. Everything had to come together, from one company, before the next step in innovation happened.

When the PC came along in 1981, with its open architecture, innovation became a free-for-all. Intel owned the chip, and Microsoft the operating system, but everything else was fair game. Companies flooded into the market, innovating in all kinds of smart ways, especially with applications such as the spreadsheet, and the market took off.

The telematics market is well on its way to making the transition from the IBM mainframe days to the open days of the PC and beyond. Initially, Progressive had to pull an IBM and invent the whole process for telematics from beginning to end. Now, an ecosystem has developed, and all sorts of companies are free to innovate at any part of the process.

Verisk has announced an exchange, to which car makers and insurers can contribute data on drivers and from which they can pull information. GM has said it will contribute data from its OnStar system, and GM has one million 4G-connected cars on the road in the U.S. So, the need for everyone to generate their own data is going away.

The Weather Channel (represented on the panel I moderated at the conference) has information that can correlate bad weather very precisely with driving behavior — the company is even working to aggregate information on the speed at which cars’ wipers are operating, to understand in a very granular way just how severe a storm is in a certain spot.

Many other companies are innovating in new parts of the ecosystem, rather than just focusing on pricing risks better or acquiring customers. For instance, my friend and colleague Stefan Heck, a former director at McKinsey with whom I wrote a book (along with Matt Rogers) about how innovation can overcome resource scarcity, just unveiled an extremely ambitious approach to improving safety, through a company called Nauto. (A writeup in re/code is here.) Agero made a presentation at the conference about how telematics can speed claims processing and cut costs while making customers happy — essentially, the telematics system notifies the insurer instantly about an accident, so the insurer can provide whatever reassurance and help is necessary, while also sending someone to the scene so fast that it can take control of the process, rather than deferring to, among others, municipal towing companies.

The Future

The power of free and the power of a platform ensure that, before too many years go by, the costs for telematics will drop drastically and the benefits to insurers and customers will increase greatly. That still leaves insurers with the task of figuring out the right offering to customers, but, in my experience, once costs get low enough and lots of innovators get interested, experimentation eventually produces the right business model.

The question to me is: Who will that winner be?

Why GM Must Beat Google in Driverless

Mary Barra’s historic appointment as General Motors;  CEO was almost immediately mired by the firestorm over the Chevy Cobalt’s faulty ignition switches. To her credit, Barra has dealt well with the crisis. But preventing future tragedies only helps GM recover lost ground. Barra now needs to define a forward-looking leadership agenda.

That agenda should include the biggest technological disruption that Barra will face in her tenure as CEO: driverless cars. GM is working on driverless cars but, like most automakers, is taking an incremental approach aimed at semi-autonomous cars where a human driver is always ready and able to retake control. GM executives argue that fully autonomous, i.e., driverless, cars might someday be possible and become a competitive threat but that that day is a long way off. GM, therefore, does not consider itself in a race with Google.

While the imperative to beat Google is applicable to every major automaker, Barra and GM face a particularly stark moment of crisis and opportunity. Here are five reasons why Mary Barra should change gears and make beating Google (and every other contender) in driverless cars a CEO-level strategic imperative.

1. Hedge the downside. As I previously wrote, there are five scenarios that automakers should fear if Google beats them to fully autonomous cars. One scenario is that Google amasses a significant lead in differentiating intellectual property (IP). Two scenarios deal with how Google might deploy that IP — either as a dominant supplier or to power competitive offerings. Two other scenarios examine how traditional automakers might be precluded from new markets, such as driverless mobility for the young, elderly, handicapped and other non-drivers, and from new business models, such as Uber-like driverless car services that displace private car ownership.

The best way to hedge against these downside scenarios is for GM to have its own serious contender in the race to build fully autonomous cars. GM already has many of the strategic assets required for this challenge. It has a wide range of relevant expertise, both internally and at research partners like CMU. GM has also been working for years on the EN-V, a small electric vehicle concept car that now incorporates autonomous driving technology.

GM’s strongest advantages over Google, of course, are the car-building capabilities that will be critical in the transition from prototypes to production vehicles. Even if a non-incremental thrust does not ultimately produce a fully autonomous car, there would be immense learning benefits. By tackling the more challenging driverless problem, GM would gain greater insights and build capabilities in software, sensors, user interface, car integration and other key component technologies that should be relevant for semi-autonomous cars, as well. GM could enhance its own IP portfolio with key technologies that are likely to shape the industry for decades. This learning would also be important in helping GM deal with potential partners and suppliers.

2. Buy an option on the upside. Ramping up efforts on driverless cars is not just about defense. It would also allow GM to go on offense — and even potentially change the game. By accelerating the development of driverless cars, GM could put itself in a better position to take advantage of the potential business model innovation and inevitable creative destruction.

Driverless cars could spark the biggest revolution in transportation since the Model T. They could revolutionize private and public transportation — including car ownership and the nature of mobility. In the U.S. alone, more than $2 trillion flows each year through the car-related related economy, including parts, sales, financing, service, maintenance, insurance repairs, rentals and energy. The worldwide revenue stream is many times that amount.

For example, how might GM’s combination of product warranty expertise and GMAC Insurance assets open up new opportunities for GM as driverless cars wreak havoc on the $200 billion U.S. auto insurance industry? What other downstream opportunities might arise for driverless car providers, such as mobility-on-demand services, location-based advertising, infotainment and so on? How might GM beat other automakers in understanding the implications of driverless cars on its complex supply, logistics and distribution networks and gain a head start in understanding the retooling implications?

Buying options on the future has paid off for GM before. Take its OnStar telematics platform. GM made an aggressive decision to install OnStar across most of its fleet in the late 1990s and has since leveraged OnStar to improve product development, enhance customer loyalty and earn billions in product warranty savings and subscription revenues. OnStar is also an example of the increased profits that are available further downstream from GM’s current position. OnStar’s margins are five times higher than the margins of the overall GM business.

3. Control GM’s own destiny. More and more experts agree that driverless cars are not a question of “if” but “when.” With so much at stake, GM needs greater control over its own destiny. Whether GM beats other traditional automakers in the race for semi-autonomous cars depends on the success of its own efforts. Whether it beats Google, however, is currently dependent on Google’s failure—since GM doesn’t even consider itself in the race. Given the progress that Google has made and Google’s clear ratcheting up of its investments, betting on Google’s failure is not wise. GM should worry that Google might actually succeed. To control its own destiny, GM needs to have its own entry in the race.

4. Create a rallying point for GM’s larger transformation. Investigations into the roots of the Cobalt ignition problem revealed the depth of the cultural transformation that Barra must still engineer at GM. Barra herself told investigators about the “GM nod”: “When everyone nods in agreement on a proposed plan of action but then leaves the room with no intention to follow through.”

Cultural change, however, is immensely difficult. Corporate edicts and slogans sound good but have no lasting effect. It is easy to imagine, for example, how poorly GM’s cultural change efforts might fare against the “GM salute” described in the Valukas report: “a crossing of the arms and pointing outward toward others, indicating that the responsibility belongs to someone else, not me.”

In my experience, corporate cultures only change in the context of explicit actions and measurable goals. A mission to beat all others to develop, build and dominate the world of driverless transportation would create a forward-looking aspiration around which to rally the organization. Attacking such an audacious goal—an achievement that by historical rights should belong to GM rather than Google—would provide a crucible within which Barra could prototype and evolve new behaviors. Progress would be measurable, and success would provide a beacon for the rest of the organization.

5. Make the world a better place. Cars changed the world. The benefits of mobility and transportation to modern society are undeniable. Cars, however, are also a leading cause of death, injurypollution and resource consumption. For example, while estimates of fatalities attributed to the Cobalt ignition switch failures range from 13 to 74, those fatalities are dwarfed by the more than 1.2 million road traffic deaths worldwide each year. What’s more, global transportation infrastructure will require many additional trillions of dollars in the coming decades.

Rather than just pushing to address its own safety shortfalls or to build incremental semi-autonomous cars that have more limited secondary benefits, GM could help reimagine cars and car-related transportation. Driverless cars will be one of the biggest enablers to such a reimagination of transportation. The societal benefits could be enormous. They could save millions of lives and tens of millions of injuries. They could save billions of hours and trillions of dollars through more efficient resource utilization.

But there are also unanticipated secondary effects to be considered, such as the impact on jobs, public transportation and urban sprawl. Rather than taking a back seat to these monumental changes, GM could apply its expertise to help understand and shape these changes. It could be a monumental do-well-by-doing-good effort.

* * *

While there are advocates for more aggressively pursuing driverless cars inside every major automaker, including GM, most strategic decision makers are in denial. Take a comment by Maarten Sierhuis, head of Nissan’s driverless research: “As a researcher, I want full autonomy! But the product planners maybe have another answer.”

This denial mirrors the rationalizations that industry leaders usually offer about disruptive technologies: Customers like the way things work now. We need to invest in the current business instead of risky new technology. New products would cannibalize our current products — let’s make sure change is very gradual. We’ll miss our numbers if we get distracted. And so on.

Like most rationalizations, these denials contain elements of truth. In GM’s case, there are very pressing issues that need its CEO’s attention. In addition to the ignition switch recall and safety issues, GM is facing challenging market issues in Europe, Russia and parts of South America. It is grappling with a sales slump for Cadillac. And it faces great opportunity but stiff competition in the fast-growing China market.

GM also has a spotty track record for disruptive innovation. It invested early and heavily in factory automation and roboticselectric vehicles and fuel cells — and failed to reap significant market benefits from those investments.

Given all that, a multitude of internal voices are arguing against escalating GM’s response to Google. The only way to overcome the internal resistance that would otherwise smother a strategic driverless car initiative is for Mary Barra to make it a CEO-level imperative. That’s because the most critical success factor will be CEO attention, not money. No initiative that might so fundamentally change the core business—while also fighting for limited expertise and resources—can succeed without the strategic imperative that only the CEO can provide. Mary Barra must also anoint an internal champion with the resources at his or her disposal to make things happen. She must guard the initiative against corporate antibodies while also asking the tough questions needed to keep it focused rather than coddled.

In reference to the Cobalt, Barra observed, rightly, “We will be better because of this tragic situation if we seize the opportunity.” GM will be even better if it also seizes the opportunities of driverless cars. The question is whether Barra can bring GM’s assets together into a strategic imperative that rivals the passion and pace of Google’s self-driving car effort.

The 'Sharing Economy': What It Means for Insurers (Part 1 of 3)

Insurers have always been at the forefront of responding to user needs. Direct marketing and online portals make it easier for consumers to understand and purchase insurance. Usage-based insurance (UBI) allows safe drivers, particularly those who drive less, to reduce their premiums. Even insurance company-sponsored coffee houses offer a unique way to gain financial service knowledge and one-on-one access to experts.

Today, a different type of opportunity exists that may help insurers not only meet changing consumer needs but gain first-mover advantage in the process. Called the “sharing economy,” this market involves renting privately or company-owned assets—generally cars or homes—primarily through an online, peer-to-peer network. While the car-sharing market in North America is exploding, few insurers have even begun to explore this market.

As people continue to seek new opportunities in this economy, and as Millennials begin to take control, it’s likely that this idea of “sharing” will not only thrive but expand. The question is: Can insurance companies make a reasonable profit from this market? If so, how will they adapt their models to meet the new consumer demands?

To begin answering these questions, we will take a look at three areas. In this article, the first part, we’ll define the sharing economy and examine some of the innovative models already in play. Then we’ll discuss the insurance challenges that sharing-economy companies are facing, and the insurance industry’s response. Finally, we’ll look at four steps insurers can take to begin evaluating the sharing economy as a viable business opportunity.

Access trumps ownership

The sharing economy offers a fast and efficient way for owners of assets and renters to connect through online services. Two main stars have emerged in the sharing economy: auto and home. Companies like RelayRides and Getaround can help a consumer rent a car for a few hours of errands or even enjoy an SUV for a weekend in the mountains. The other main sector, home rental, allows owners to rent out their homes or simply a room on a short-term basis through companies like Airbnb. As the sharing economy branches out, owners are renting out other assets such as parking spaces, tools and camping gear.

It’s all about monetizing unused capacity of an asset for owners. For renters, it’s about gaining quick and easy access to those assets without being bogged down by ownership. Access, in a sense, becomes a service that is paid for per time increment or by distance.

Much of this market is being driven by the Millennials who grew up with the ideas of sharing, renting and paying small transactional fees for access to things such as music and movies. This generation has been slow to move out of their parents’ houses, and many delay getting their driver’s license for a few years. They simply don’t value ownership the way previous generations have. That means sales are down for this generation, especially on large items such as cars.

As the sharing economy becomes more popular, large companies are jumping into the mix. For example, Avis paid $500 million for Zipcar to gain access to the peer-to-peer market. Daimler’s Car2Go charges 38 cents per minute including fuel, insurance and parking. And GM invested in RelayRides to allow peer-to-peer rentals of OnStar-enabled cars.

There’s a reason consumers and corporations are embracing this model. Forbes predicts that the global sharing economy will grow by 25 percent this year, reaching more than $3.5 billion. Frost & Sullivan estimates that the North American car-sharing economy alone will reach $3.3 billion by 2016, with 9 million members participating. And once self-driving cars come into play, decreasing the risk inherent in different driving behaviors, the car-sharing model could explode.

Next week, we'll explore the interactions between sharing-economy advocates and insurance companies.