Auto OEMs’ “unfair” structural advantage in insurance
Automotive OEM insurance has been around for decades, yet the prevalence of connected car data could bring about its breakthrough moment, due to inherent advantages OEMs hold over this data.
Some of the advantages are medium-term as insurers start utilizing data for more and more of their portfolio, some of the advantages though are here to stay. Forward-thinking insurers like Progressive are proactive: they have already included data collection capabilities within their apps, allowing for telematics scoring, and serve as a proxy for the FNOL signal.
Competitive offers with strong value-add, such as emergency assistance and faster repairs, should help automotive OEM insurance find its breakthrough moment.
Here’s how connected car data can influence the loss ratio:
FNOL signal.
Knowing the moment a crash occurs not only offers an immediate customer benefit in terms of emergency assistance, it also allows to use your own (cheaper) tow truck network and steer the customer to the OEM’s repair network (see below). In addition, it minimizes the risk of the customer adding unrelated claims costs that often happen the longer the claim filing takes.
ADAS.
Detailed ADAS knowledge by the OEM allows for better risk assessment.
Telematics scoring.
Car data provides the best data to assess driver skills, allowing for better scoring.
Driving behavior.
Giving detailed, immediate feedback to the driver has proven to positively impact driving behavior.
OEM repair network.
For strategic reasons, most OEMs steer repairs into their own network. OEM parts and labor rates are more expensive from an insurance point of view, but partially offset by a faster repair time. A faster repair time not only decreases the rental car fees but also is amongst the top reasons why customers do not churn.
Now let’s take a look at the expense ratio:
Accidenta data.
Obtaining car accident data allows the semi-automation of the reconstruction of the accident, saving time and effort by the claims experts, and allowing for a more objective assessment of liability.
Self-serve.
With the rise of EVs, more customers use car apps as part of their daily routine. Integrating the relevant insurance functions allows customers to self-serve or even to automatically update (e.g. updating yearly mileage) without any customer interaction.
Payment.
Bundling finance/lease and insurance payments ensure lower delinquency rates.
Customer access.
Direct access to the customer at the most likely insurance switching time (the car purchase) eliminates the need for costly marketing and advertising year-round. The insurer usually only pays a commission if a customer buys insurance, reducing initial customer acquisition costs substantially.
Commissions.
If the automotive OEM chooses to build their own insurance carrier, there is no more need for the typical commission for the distributor (broker, agent, etc.). Although this is a strong advantage, building and running an own insurance carrier is not a small operational task, requires substantial financial commitment (starting with the minimum capital requirements for an insurer), and thus is a very strategic decision.
The structural advantage of automotive OEM insurance goes beyond better pricing due to lower combined ratios. It also puts the customer front and center, leveraging the connected car data to decrease the amount of time the customer needs to spend on insurance-related tasks. A true win-win situation.
This analysis was authored by Dr. Andreas Schroeter, Chief Product Officer. Movinx’s product team are the company’s experts in insurance customer experience. Movinx is a global insurtech specializing in embedded auto insurance solutions, with a focus on OEM-driven solutions; it’s a licensed producer in the EU and all 50 states in the US.
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