Connected car insurance is a topic that is causing a lot of excitement and debate about its reality and future. But what is exactly connected insurance? In this guide, specially designed for insurers, we help you to understand the realities of connected insurance, the specificities of the two types of connected insurance offers on the market and the reasons that lead us to believe that the rise of connected insurance will be ttied to mobile telematics!
What is connected insurance?
Definition
Connected insurance emerged in the early 2010s and owes its rise to the simultaneous convergence of two phenomena: the slow but continuous digital transformation of the insurance sector and the birth and democratisation of IoT (Internet of Things).
What is the Internet of Things?According to Oracle, "The Internet of Things (IoT) describes the network of physical objects—“things”—that are embedded with sensors, software, and other technologies for the purpose of connecting and exchanging data with other devices and systems over the internet. These devices range from ordinary household objects to sophisticated industrial tools. With more than 7 billion connected IoT devices today, experts are expecting this number to grow to 10 billion by 2020 and 22 billion by 2025." |
Connected insurance relies on data collected by IoTs or any other device capable of analysing its environment and capturing the data. The data collected is then transmitted and stored in a data lake. It is then processed and analysed to identify new predictive models or reveal previously hidden insights.
A variety of applications
Connected insurance impacts all types of insurance:
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Home insurance, in the form of home automation or connected home,
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Health insurance, in the form of connected health,
And car insurance is no exception! Connected car insurance take the shape on the French market of two new innovative insurance products:
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Usage-Based Insurance (UBI), also known as Pay-As-You-Drive or Pay-As-You-Go, based on vehicle mileage or driving time,
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Behavioral insurance, also known as Pay-How-You-Drive, based on the analysis of the driver's behavior.
Zoom on usage-based insurance
Historically, the use of a vehicle in motor insurance is one of the criteria enabling the insurer to calculate the amount of the premium. By usage, the insurer means the average use of the vehicle estimated according to the information provided by the insured at the time of subscription. For this reason, the policyholder is asked about his annual mileage, place of residence, place where the vehicle is parked, type of travel (business and/or personal), additional drivers who will be driving or lending the vehicle to third parties. All this information is used by the actuaries to feed their models and estimate the insured's risk profile. It is on the basis of the estimated risk profile that the insurance premium for a driver is calculated.
How UBI works
Usage-based insurance involves a completely different approach. It is not based on estimates but on the measured use of the vehicle. Thus, in the context of a Pay-As-You-Go insurance, the word usage refers to the actual mileage driven or the actual driving time.
In this context, the insurance premium is then calculated according to the mileage or driving time provided. This information can be collected in several ways:
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By the driver himself by regularly taking pictures of his vehicle's odometer. This is the system deployed by Flitter, which asks its policyholders to send them a photo of their odometer once a year.
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Via the policyholder's mobile in an automatic and transparent way thanks to a mobile telematics application. This is the system favored by Maif and Altima in partnership with DriveQuant.
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Via a connected box or another type of IoT.
Pricing
In general, the pricing of the insurance premium for a Pay-As-You-Drive offer combines two elements:
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a pre-defined monthly premium,
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an additional premium based on measured monthly or annual mileage or driving time.
Usage-based insurance is mainly aimed at short-distance drivers, owners of classic cars, and owners of a second or third car who have limited use of it.
The best example: Altima and pay-per-minute insuranceThanks to DriveQuant's white label application, Altima launched in 2018 the first per-minute insurance offer in France. This offer targets drivers who drive less than 6,000 kilometres per year. The way Altima's pay-as-you-go insurance works is very simple: the policyholder logs in on the app available on Android and iOS, then places a small Bluetooth receiver, also known as a beacon, in the glove box of his vehicle. The receiver only records the journeys made with the insured vehicle. After each trip, the journey is uploaded to the application with the actual driving time. For more details on how Altima's pay-per-minute insurance works, see our case study! |
Zoom on Pay-How-You-Drive insurance
Behavioral insurance, also known as Pay-How-You-Drive, is an innovative insurance product that analyses the driving style of an insured and modulate accordingly the insurance premium.
How it works and pricing
Behavioral insurance works differently from traditional car insurance:
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The policyholder installs a mobile telematics application and/or an IoT in the vehicle,
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Each time the policyholder makes a journey, the application automatically starts up and uses the phone's sensors to detect: speeding, braking, cornering and phone distraction.
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At the end of each journey, the driver is given a safety, eco-driving and distraction score.
The insurance premium is then calculated according to the average scores obtained by the insured. The closer the score is to 10, the lower the insurance premium because the driver's driving behavior is considered low risk. Conversely, the closer the score is to 0, the more risky the driver is considered to be and the higher the insurance premium.
This type of offer rewards good drivers by giving them back purchasing power, as well as young drivers who pay a very high insurance premium and are looking to make savings.
The best example: Yeet AssurancesDue to the increasing difficulties encountered by VTC drivers in obtaining insurance, Yeet Assurances launched Yeet-VTC, a Pay-How-You-Drive insurance for these drivers. Thanks to this insurance product, drivers adopt a less aggressive driving style, are less distracted while driving and even save fuel. On average, Yeet-VTC policyholders claim to save around 20% on their insurance premium thanks to the driving analysis. For more information on how Yeet-VTC works, check out our case study! |
Smartphone telematics and connected insurance: the winning combo
There are several technologies available on the market to launch a connected insurance program. However, none of them offer the advantages of smartphone telematics.
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Car insurance offers with connected boxes have shown their limits: cost, logistics, support, complexity of installation and transparency of the data collected... All these elements negatively affect the customer experience and are the subject of many complaints from customers that are difficult for an insurer's support team to handle.
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There is a lot of fantasy about insurance offers that use data directly from connected vehicles. However, the reality is different because no data standards are defined, making data impossible to process on a large scale. Moreover, car manufacturers such as Renault or Stellantis have little interest in sharing this data with insurers as they wish to become fully-fledged insurers in the medium term. It should also be added that data coming directly from connected vehicles does not allow distracted driving to be detected!
What about Tesla's behavioural insurance?Indeed, Tesla has launched a behavioral insurance offer on the American market. It is based directly on data collected by the vehicles in real time. However, it is necessary to underline some specificities of this Pay-How-You-Drive insurance:
The limits of Tesla's behavioral assurance are therefore quickly apparent. However, Tesla deserves credit for getting into connected car insurance and promoting innovative insurance products. |
Smartphone telematics: the only complete technology
Given these facts, smartphone telematics is the best solution for launching a connected insurance offer. Especially since its advantages are numerous:
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It is a universal technology, since all you have to do is download a mobile application to benefit from it,
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It is a technology of the present: it is proven and 100% functional,
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The insurer has the choice of integrating the telematics SDK directly into its application or using a white label application,
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The data transmitted is standardized and therefore easily exploitable on a large scale,
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It is the only technology that can measure distracted driving, one of the most important sources of accidents,
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The data is qualitative and the mobile application format facilitates transparency for the user,
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It is the only way to create a digital customer experience worthy of the name by offering additional services that directly benefit the insured:
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Personalised coaching based on measured behavior,
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driving challenges to prevent risk indicators,
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automatic crash detection (similar to the feature Apple offers),
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speeding up and digitalising the processing and follow-up of a claim.
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Connected car insurance as a green insurance product
In addition to all these advantages, connected insurance is also an offer that promotes a rational use of the car and favors the transition to alternative forms of mobility that are more sustainable.
Let's take the case of Pay-As-You-Go insurance for example. The driver knows that the more he drives, the higher his insurance premium. The insured who subscribes to such an offer will therefore try to limit the use of his vehicle as much as possible to save money. Regularly, the driver will opt for other means of mobility or even walking.
Regarding Pay-How-You-Drive, drivers are encouraged to adopt eco-driving to reduce their insurance premium. This driving style is based on smooth acceleration, anticipating braking and adopting lower speeds to optimize fuel consumption. Motorists who go for behavioral insurance therefore have a vested interest in adopting eco-driving to achieve better scores leading to lower premiums.
Beyond these customer benefits, the insurer also has many advantages to gain from launching Pay-As-You-Drive or Pay-How-You-Drive programs. To begin with, these offers are real marketing assets because of their environmental benefits. The new generations, like Generation Z, are very attentive to these aspects, since according to Accenture, 67% of young people under 18 years of age prefer experiences that promote sustainability.
On the other hand, launching a connected insurance offer for an insurer is proof of strong ESG (Environmental, Social and Governance) commitments and impacts. In an increasingly competitive market, connected insurance can therefore be used to differentiate itself from its competitors.
Ecodriving: why should insurers take up the subject?
To read our white paper in English, click here! |
In our white paper "Ecodriving and insurance: stakes and opportunities",
Conclusion
Connected car insurance takes the form of two new insurance products: usage-based insurance and Pay-How-You-Drive programs. These two offers differ from traditional car insurance by proposing a radically different approach, since the insurance premium can be adjusted according to the actual mileage or behavior of the driver. We are therefore witnessing an ultra-personalization of insurance thanks to connected insurance. The calculation of the premium is no longer based on discriminating criteria and an estimated risk, but on factual, quantifiable criteria that provide a precise measure of the vehicle's risk.
To promote the rise of connected insurance, smartphone telematics appears to be the most relevant technology. It has the merit of being already functional, affordable and above all universal. It is therefore a solution of the present as well as the future. The long-awaited but recurring promise of exploiting data directly coming from connected vehicles is only a (very) distant horizon that tends to encourage immobility to the detriment of immediate and virtuous action.
Virtuous because connected insurance, whether in the form of Pay-As-You-Drive insurance or Pay-How-you-Drive insurance, is a product committed to a more sustainable mobility. Drivers who subscribe to these offers are encouraged by the pricing system to think about their mobility and reduce their car trips to save money. Policyholders who cannot reduce their dependence on the car because of their location or other constraints can still take action by adopting eco-driving and reducing their fuel consumption by at least 10% and therefore the CO2 emissions linked to their trips.
Insurers who decide to launch a connected insurance offer opt for an innovative product and empower themselves and their clients to act in favor of more sustainability.
