Insurance companies around the
world are promising lower rates on car coverage. The catch? They want
to install the equivalent of an airplane's black box to track how and
where you drive.
Smartphone applications and devices that record trip and vehicle
data are set to infiltrate car insurance at a rapid pace, bolstered by
discounts of as much as 30 per cent. Consultancy Oliver Wyman forecasts
that car insurance using driver data to set prices will grow 40 per
cent a year to become a US$3.6-billion (S$4.7-billion) market by 2020.
For insurers, it will provide fine-grained information on an
individual's driving style, such as flooring it to beat a red light, to
improve returns in the competitive segment. For drivers, Big
Brother-like monitoring offers the prospect of lower rates and faster
response time in the event of an accident, including medical assistance
and repairs.
In any case, the shift away from standard practices of rating
customers by age and driving history might be unavoidable. "In the
not-so-distant future, it will become a market standard," said Mr
Domenico Savarese, who heads vehicle-data efforts at Zurich Insurance
Group, which provides car coverage for about 15 million drivers in as
many as 30 countries. As cars become increasingly equipped to gather
and transmit data, "motor insurance will by definition need to change",
he says.
Auto coverage in Europe generates about €130 billion (S$210 billion)
of premium income a year, the largest segment aside from life
insurance. Because motor insurance is largely standardised, insurers
fight for market share with lower rates.
That has meant Germany's car insurance market, Europe's biggest, has
been unprofitable for carriers since they intensified price cuts in
2005. Insurers in Britain, Europe's second biggest, are also seeking
ways to end years of underwriting losses. Insurers are looking for
alternative tariffs, and rates based on individual data may make it
tougher for consumers to compare prices.
Roland Berger Strategy Consultants counted insurers on six
continents and about 30 countries working on user-based programmes,
according to a study. That is becoming feasible due to trends in the
car industry. Manufacturers from Volkswagen to BMW are making cars more
connected to and features that warn other vehicles of traffic jams and
ultimately to facilitate autonomous driving.
Regulators are also underpinning the spread of the technology.
European Union legislation will require new cars to have a system that
automatically notifies emergency services after a serious crash,
relaying basic data about the location of the accident even if the
driver is unconscious.
Still, car makers have not made the data readily available as they
seek to protect their turf. That has caused insurers to side-step the
manufacturers with devices that gather that information independently.
"Since car makers are sitting on the data, insurers are taking a
shortcut," said Mr Juergen Reiner, a partner at Oliver Wyman. "That
means insurers get that part of the customer relationship, at the car
makers' expense."
In Ireland, Axa SA is promoting its Drivesave programme, with
discounts of as much as 20 per cent, to drivers from 17 to 24 years
old. The service uses a smartphone app to record data such as
acceleration, speed, distance and stopping force. Another 10 per cent a
year could be saved if customers continue to drive safely. In Axa's
home country of France, a similar programme will be introduced next
year that may reward good drivers and penalise bad ones. Allianz SE,
Europe's largest insurer, is following a similar path and will open a
centre at its Munich headquarters next year to expand its
monitored-driver offering to 10 countries from four.
For decades, commercial airliners have been equipped with voice and
data recorders that record flight information and can help determine
the cause of an accident. While privacy concerns exist in expanding
that capability to cars, the lure of lower premiums and added safety is
a powerful incentive, especially among younger drivers who are
accustomed to permanent connectivity.
Zurich's Mr Savarese said: "We don't want to get data that we don't
need, so we don't become a Big Brother. Clearly, we want to know if
there's an accident, and that's probably the moment when we will want
to know the most about your drive."
While user-based car insurance makes up less than 5 per cent of the
market, the share is expected to soar to 26 per cent in the US and 38
per cent in Britain by 2020, according to the November study from
Roland Berger Strategy Consultants.
"We think it's ultimately unstoppable," said Mr Juergen Thiele, a
partner at Roland Berger. "It'll be a market standard, even though
we'll see some of the old tariffs remain."
