AUTO AND CONNECTED VEHICLE INSURANCE: BETWEEN CREATION AND DESTRUCTION OF VALUE

Pay As You Drive, Pay How You Drive, or even Manage How You Drive, many connected auto insurance products have appeared in recent years. Although connected vehicles seem to be a growth lever for insurers, the reality is more mixed. As Patrick Durand mentioned during his speech at the conference organized by Argus de l'assurance, the auto insurance market could structurally transform when autonomous vehicles appear massively and change our relationship to mobility.

Connected car insurance in 2018: an attractive reality but struggling to impose itself

The emergence of connected vehicles and a new generation of insurance offers

Connected vehicles are characterized by their ability to collect information on their immediate environment, transmit it, and carry out actions in real-time. Currently, 100 million connected vehicles are in circulation, and this figure could reach 470 million in 2025. Thanks to the numerous on-board sensors, these vehicles can collect driving data, such as acceleration, braking, or even how to approach a bend. Insurers, attracted by the wealth of this data, quickly wanted to access this pool and designed a new generation of auto insurance offers aimed at taking advantage of these technological developments. Few do not offer a behavioral insurance offer, the most emblematic examples of which are Pay As You Drive (an insurance based on the distance traveled by the user) and Pay How You Drive (an insurance based on the user's driving behavior).

The pooling of risks has historically been one of the foundations of insurers. However, today the connected vehicle is upsetting this principle and paves the way for the personalization of offers. Indeed, connected vehicles allow insurers to collect and analyze a great deal of driving data. As a result, they have a more detailed knowledge of the driving behavior of each customer and its risks. It is thanks to this technological evolution that behavioral auto insurance offers have emerged. The insurers individualize the offers to each customer: the premiums paid by each insured are specific to them and are adjusted regularly according to the distance they cover or their driving behavior.

An attractive market for both insurers and their clients

The promise made to policyholders is attractive: the more careful the policyholder is in his conduct, the greater the reduction in his insurance premium. And the financial gains can be significant: Direct Assurance, for example, displays a reduction of up to -50%. Attractive offers, particularly for young people and short riders who find it difficult to benefit from reduced rates.

Connected auto insurance is also of interest to insurers. In particular, they aspire to attract low-risk customers, “good risks”. Indeed, on the one hand, at-risk drivers naturally do not subscribe to connected car offers for fear of seeing their premium increase. On the other hand, customers who subscribe to these offers are tempted to be more careful since they are aware that they can reduce their premium by this means. To promote this positive selection dynamic, insurers generally offer advice to their clients to improve their “driving score”. Insurers cite a drop in claims of around 10% to 20% in the case of connected auto insurance compared to traditional insurance (between -15% and -20% for Carapace de Société Générale, -20% for YouDrive from Direct Assurance, -11% for Groupama). Finally, the last element coveted by insurers through these offers is data. Thanks to the rich data they collect (today via a telematics box installed in the automobile), insurers claim to be able to identify the risk associated with a motorist with great precision, and in just 9 months. Some are even considering removing the expensive telematics installation after this time.

In France, the success of connected auto insurance remains very limited

Although these offers have many advantages, their success in France remains very limited to this day. Indeed, less than 6% of French motorists have subscribed to it. Why are these offers which seem to have all the assets to convince not developing in France when they are multiplying, for example in our Italian neighbor?

The main obstacle seems to be the reluctance of French motorists to share their driving data. Respondents say they are ready to share their data as long as the resulting financial gains are large enough. But insurers are realizing that it is difficult to grant significant gains to their customers because of the high cost of access to data. Indeed, insurers must generally equip their users with a telematics solution to collect data (box with SIM card, box, and application, the application only, connected sticker, etc.). Depending on the solution chosen, the cost of equipment and its installation can vary from € 25 to € 75 per user. Access to driving data, therefore, represents a significant cost.

An inevitable contract in the personal auto insurance market?

Risks of value destruction and many difficulties in creating value

The results of connected auto insurance offers are divided between the creation and destruction of value. Although the goal of insurers is to attract new customers, in reality, they admit that 80% of those who subscribe to their connected auto insurance offers are already part of their customers. The risk of cannibalization of sales is therefore strong and could harm the sustainability of insurers since connected auto insurance is on average less expensive than traditional insurance. Ultimately, a goal shared by a large number of insurers is to create value by offering other market services related to driving, safety, or even leisure, but to date, none has succeeded in making this bet a reality. as Laurent Altountopian, Groupama's Personal Insurance Director, admits: "A beautiful story but difficult to turn into reality". This observation is shared by local insurers who admit that financially, their goal is not to lose money.

By setting up a behavioral insurance offer, their objective is generally to collect data, improve their understanding of driving behavior and refine their knowledge of customer risks. A strategy that certainly seems pragmatic but which could prove to be unsuccessful if we plan for the long term. In fact, within 20 years, autonomous vehicles will probably become more democratic. Under these conditions, the driver we know today will become a passenger and therefore no longer bear the risk associated with driving. The interest in investing to know precisely the risks of drivers is ephemeral because new actuary models will no longer be used in autonomous vehicles become widespread.

Towards a 100% autonomous vehicle?

Mobility As a Service: the real upheaval in auto insurance is yet to come

The impact of connected vehicles on the auto insurance market is not negligible. However, the real upheaval could still be to come and would be caused by the massive appearance of autonomous vehicles. Their proliferation could be the source of major changes in our modes of mobility in urban areas. Mobility today is mainly an economy of possession since most of the trips are made with a personal vehicle. Tomorrow, we are likely to move towards an economy of mobility for use, in which automobile transport is a service consumed occasionally by users. Carsharing, which has already experienced strong development (as shown by the multiplication of platforms such as Blablacar or Drivy) is doomed to an explosion when it is carried by autonomous vehicles. In 2021, every month35 million users could use carsharing, i.e. 6 times more than today, and in 2030, 1/3 of new vehicles could be used for it. Mobility is destined to reinvent itself and its transformation will have a huge impact on insurers. The real stake could be in the understanding of these new uses.

In this hypothesis, two development paths are available to insurers. The first is the development of B2B2C offered to car-sharing platforms and intended to cover the users of these platforms. The second is the redesign of B2B offers to meet new needs. Tomorrow, automobile mobility will be a service subscribed from time to time. This new mobility experience requires insurers to transform their business model and the user experience they offer. Customer journeys must be fluid, and key steps such as subscription or termination must be able to be completed in a few moments. The evolution of mobility uses implies an evolution of the services offered by insurers. Faced with an automobile mobility service consumed occasionally, users will expect to consume a purchased insurance service during one trip. In this context, the rather heavy Information Systems of insurers do not work in their favor. One of the keys could be a collaboration with start-ups. Some Assurtechs such as Trov or Leo care indeed offer solutions that can be subscribed in a few minutes and can be activated or deactivated as needed.

Conclusion

A car connected has not yet been a growth driver for insurers, mainly because of the high cost of access to data. The creation of value could still be caused by the integration of new technologies such as blockchain via the automation of certain management acts (subscription, declaration of claim). Gradually, in large cities, a new mode of mobility will appear by 2035. This strong transformation of mobility caused by the democratization of autonomous vehicles will be a challenge for insurers who will have to offer services adapted to new uses. They will also have to be vigilant to anticipate the risks of competition in this niche, in particular from GAFA. Thanks to their voice assistants or their autonomous vehicles, they could benefit from privileged access to data. The threat is therefore serious since GAFA could use their capacity for data analysis, understanding of uses, and provision of services to tomorrow offer auto insurance as one of these services.