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Insurance Companies Are Watching Your Car

Car buyers pay a lot for features which make them less likely to have an incident. Insurance companies are now starting to look into how this could change the way they do business

Many new cars sold today have an Advanced Driver Assistance System (ADAS), with different automakers offering competing ADAS implementations. These can be anything from lane-keeping, automatic braking, adaptive cruise control, to any combination thereof. These assistance technologies are generally considered a first level of autonomy. The primary aim of ADAS is improving safety, which is even now being seen in the trucking industry. The UK’s Department of Transport expects 40% of new cars sold in the UK by 2035 to be capable of degrees of self-driving, essentially the next level of ADAS development, and a significant reduction in accidents because of this. This represents a dramatic change for the auto insurance industry.

Accidents lead to claims. The increasingly advanced ADAS systems that vehicles are being outfitted with directly impact traffic behavior. This, in turn, means that insurance companies will need to take ADAS into consideration when processing claims and characterizing their offerings. Currently insurance companies are struggling to keep up. When purchasing a vehicle, customers can choose between competing ADAS features and can often pay extra for increased safety. However, insurance premiums rarely reflect the extra expense on features that promise increased safety. In order for this to happen the insurance companies need to know what ADAS features an individual car has, whether they are turned on, and how they may be involved in any given accident. In other words, insurance companies need data.

The relevant information can be obtained in roughly two ways. On the one hand a move toward ADAS standardization has begun to pave the way for comparisons between various types of systems automakers put in their vehicles. Similar to an energy rating this could lead to vehicles with advanced ADAS functionality costing more upfront but leading to lower insurance premiums during ownership. The other way is to gather data directly from the vehicles themselves. This is the approach of Tesla Insurance. Because Tesla Insurance is able to see exactly what is happening in their vehicles, they can significantly undercut competitors’ insurance offerings. Because this approach requires direct real-time data this limits insurance to Tesla vehicles at the moment. It would not be surprising to see a move in this direction by either another OEM or by a partnership between an insurance company and an OEM.

Personal comment:

Greater vehicle safety is without a doubt a good thing, and ADAS has been contributing to that for some time. Because the purpose of insurance is the mitigation of risk it makes perfect sense that insurance rates should reflect an investment in something like ADAS that lowers the risk of an accident. Especially as these features can at times cost a significant amount of money. Greater safety and lower insurance costs: what could be better for consumers?

There is a potential worry, however. As mentioned above there are two ways of gathering the relevant data: through standardization, or through direct real-time data capture. One way of grasping the difference between the two is in terms of their granularity. Standards capture a kind of car and a kind of ADAS, but they are limited to a granularity at that level, which is to say they are pretty broad. Real-time data, on the other hand, is individualized to the particular vehicle and the particular driver. The more granular the data that is captured, the more accurate it is for determining liability and thus insurance cost – but then thorny questions of privacy, data ownership, data management, and security also become more pressing.

This, perhaps, is nothing new when it comes to insurance companies and those that are being insured. However, some features of the current situation are new. The scale of information that is able to be captured, new ways of making money on that data, and the regulatory ambiguity around personal data. This new digital environment is one that companies, countries, and citizens will need to navigate.

Written by Joshua Bronson,
RISE Mobility & Systems (Människa-autonomi)