2021 and beyond – Will manufacturers be the new vehicle insurers (even if underwritten by existing insurers)?
In the final few months of 2020, General Motors (GM) announced its intention to launch a car-insurance business based on the idea that its vehicles can remotely track drivers’ behaviour, allowing GM to set insurance rates accordingly. GM joins the likes of Tesla and Ford, both of which announced similar plans in 2020 to use data and insights from their vehicles to offer bespoke insurance deals to customers. A clear trend is developing state-side, so can we expect to see a similar wave of offerings from European-based manufacturers in 2021 and beyond? And, more importantly, are consumers on both sides of the Atlantic ready and willing to embrace this new way of buying motor insurance?
The current state of play
Usage-based insurance is no new thing, but to date has largely focused around telematics black boxes and mobile apps. However, the amount of data in the connected vehicle itself is increasingly powerful and, in some instances, more reliable. Current telematics devices most commonly use GPS and accelerometers. Many already use industry-grade GPS, so it’s likely one of the most significant improvements that will occur from 2021 and beyond will be through better accelerometer data. With existing telematics, accuracy can be lost through poorly fitting devices, so if the manufacturer builds the device into the vehicle, the results will inevitably be more accurate and consistent. Some new vehicles also provide additional data through wheel speed sensors, which provide even more precise information.
In addition to a greater volume of data being collected by the vehicle, improvements in connectivity mean that not only can this data be used to empower insurers to quote more accurate premiums, but it can also provide important insights in the event of mechanical issues or crashes. High-speed data transfer provided by 5G technology will enable on-the-spot diagnostics, real-time help and support, accident management, precise parts ordering and the latest technical updates - benefiting consumers, manufacturers and insurers alike.
Boosting benefits for consumers in 2021 and beyond
The obvious benefit to consumers is that rather than calculating premiums based on averages and algorithms, the quote made will be truly reflective of the individual’s driving habits. Thanks to the advances in technology, manufacturers are going to know how someone drives better than they do themselves.
The benefits to such an approach are obvious, although whether it’s seen that way may depend on a person’s driving skills. But in addition, the lockdowns brought about by the COVID-19 pandemic and the change in many people's working practices for 2021 and beyond have led many consumers to evaluate and question how they insure their vehicles. With many cars sitting in garages for months on end, consumers are increasingly looking for flexible options that truly reflect the way they are actually using their vehicles rather than according to generic answers provided months earlier.
Manufacturers are often best placed to provide such usage-based insurance policies because they will obtain real-time data from the vehicle. Also, by removing the need for a third party to gather and process data through additional telematics devices, manufacturers will be able to lower costs by creating a seamless end-to-end offering. We’re also likely to see manufacturers offer package-style deals, in which they will provide insurance discounts and freebies with the purchase of a vehicle.
The other factor that will play an important role in encouraging consumers to buy insurance directly through the manufacturer is the growing momentum for electric vehicles. With the UK Government bringing forward the ban on the sale of new petrol and diesel cars to 2035, along with a growing consumer preference for ‘green’ choices, electric vehicle sales are on the up - more than 500,000 were sold across Europe last year.
Electric vehicle insurance has tended to be expensive because these vehicles require more specialist fixing and parts - one of the reasons Tesla launched its insurance offering. With electric vehicles making up a larger proportion of car manufacturers' portfolios, offering bespoke insurance for this fast-growing market could be a lucrative additional income stream.
The impact on insurers for 2021 and beyond
So, what does this mean for insurers? It might sound like bad news, with a potentially huge volume of revenue flowing directly to car manufacturers. However, the reality is that the majority of policies offered by manufacturers are still underwritten by established insurers. GM’s new insurance offering, for example, is backed by a subsidiary of American Family Insurance; while Admiral underwrites Ford Insurance.
Part of the reason car manufacturers have refrained from diving into the market is a recognition that insurance companies have a long track record of, and expertise in, underwriting and claims handling. So, it's easier for manufacturers and insurers to work in partnership and play to their respective strengths.
All eyes are on Tesla - the company’s chief executive Elon Musk has declared his intention to roll out a fully-fledged insurance offering across the US next year. While certainly a potentially lucrative move, it’s by no means a straightforward one.
Setting up as an insurer means being willing and able to meet stringent regulatory and capital solvency requirements. And, as Tesla found out to its cost when it launched its new insurance offering in 2019, a great deal of hard work is required to ensure the back-end works properly. So manufacturers will have to weigh up the pros and cons of doing it themselves versus partnering with an existing insurance company. However, even a few manufacturers choosing to go it alone will be a challenge to the old guard insurance market. This could lead to pricing wars, but that would only be good news for consumers.
European motor manufacturers will be closely watching developments across the pond to assist with their future planning. But one thing is for certain - the advancements in vehicle technology and connectivity mean we are entering an energetic and exciting phase of progress, and maybe even transformation, in the motor insurance industry for 2021 and beyond.