Your Car's Telematics Can Lower Your Car Insurance Costs
Telematics help reduce insurance costs while providing a new revenue stream and enhancing buyer loyalty.
THE DETROIT BUREAU.COM | Jan. 9, 2023
The next time you buy an automaker’s new car, truck or SUV, you might also buy its insurance.
Like other OEM systems, GM’s telematics-based insurance uses OnStar to collect data and measure driver behavior.
Selling insurance could be a new profit center for automakers, as companies like Tesla and GM are expanding their efforts at selling it. The move comes as the data created by cars themselves is used to not only provide lower insurance premiums, but also ensure consumer loyalty.
During the past few years, at least 17 OEMs have released telematics-based insurance packages, all of which make use of a vehicle’s built-in telematics collected driving data to provide a discount based on a motorist’s driving behavior.
The technology is hardly new. For nearly a decade, Progressive Insurance has offered policyholders the opportunity to install a device in the vehicle’s diagnostic port that tracks their driving behavior and adjusts the rate accordingly. But it’s now reaching automakers’ instrument panels — specifically, their telematics systems.
As a result, Ford, GM, Hyundai, Kia, Mercedes-Benz, Stellantis, Tesla, Toyota and Volkswagen offer car insurance. Additionally, many automakers have partnered with insurance companies, including Ford with Arity, GM with American Family, Ford with Octo Telematics, PSA with AXA, Daimler with SwissRE.
“Insurance represents typically 10%-15% of a vehicle’s total cost of ownership. So the ability to reduce this would have a major positive impact on OEM’s sales,” said Andrew Jackson, Ph.D., research director at Ptolemus Consulting Group, which recently released a study on connected car insurance.
Technology drives new policies
Among the innovative new products advancing telematics technology has created are policies with rates that are not only based on the owner’s driving habits, but ones that use a car’s telematics to specify how far owners drive. Known as pay-per-mile car insurance, its cost is based on how many miles the car’s owner drives. Customers are charged both a fixed monthly base fee and a variable monthly mileage rate, meaning your monthly mileage fee changes based on the number of miles you drive each month.
But there are downsides.
Telematics-based insurance uses many data points that affect your rate, including what time of day you travel.
Telematics and Smartphone apps are driving new revenue streams for automakers.
Your insurer also tracks your driving behavior, including what time of day you travel, whether you use your phone while driving, and whether you brake hard or accelerate quickly. The technology is hardly new. For nearly a decade, Progressive Insurance has offered policyholders the opportunity to install a device in the vehicle’s diagnostic port that tracks their driving behavior and adjusts the rate accordingly. But it’s now reaching automakers’ instrument panels — specifically, their telematics systems.
But drivers are increasingly looking to lower the cost of insurance, particularly on battery electric vehicles (BEVs), which tend to cost more to insure than conventional cars. Part of the reason is fairly simple: BEVs cost a lot to buy, which affects your cost of insurance. But beyond that, specialized tools and training needed to repair them, driving up the cost of repairs, and insurance. And insurers are wary due to BEVs’ off-the-line speed.
But how far these OEM programs progress depends on privacy laws, which governments are increasingly concerned about. Whether any regulations will strangle this nascent revenue stream remains to be seen.
What’s in it for OEMs
Some companies, like GM already offer traditional car insurance, regardless of the brand of car. But the use of telematics can help GM process claims far faster than the 18-to-25-day average. They’re hoping to be able to instantly know of any damage caused by an accident and settle far quicker, which reduces insurance costs.
Tesla pioneered the idea of OEMs selling their own telematics-based insurance.
The trend towards automakers offering insurance was started by Tesla, which receives data on how their vehicles are being driven. This allows Tesla to provide feedback to drivers, resulting in a significantly reduced accident rate, and thus lower insurance costs. It also helps foster brand loyalty.
It’s the sort of connected car service that most drivers will consider and OEMs could profit from, as opposed to other subscription-based models that have the look and feel of thievery. Recently, BMW took the heat after proposing that buyers pay a subscription fee to use the heated seats in their cars, seats that buyers already paid for but couldn’t use without paying BMW even more.
The company also enacted a fee for using Apple CarPlay. Consumers have been resistant to such schemes, but seem more willing to pay an automaker to enable its technology to reduce insurance costs or enhance safety or maintenance costs.
And connected car insurance could prove a boon for OEMs selling to fleet buyers, where total cost of ownership is the biggest factor affecting a purchase. Reducing insurance costs no doubt could help drive sales in this segment.
In the end, it’s the data generated by vehicle telematics that are driving new revenue opportunities, notably OEM car insurance. It’s a trend that inadvertently could save some drivers money — and cost others more.