Back in February, the news broke that Tesla would be launching its in-house motor insurance for UK customers. Whilst the electric vehicle (EV) giant has offered this service in certain states in the US since 2019, this was the first time it had launched its in-house insurance service across an entire country. This move is certain to shake up the car insurance industry, with new and emerging data-driven insurance practices keeping premiums more competitive than ever.
For consumers, the connotations of in-house data-driven insurance go beyond just the luxury EV category. Also in February, the Association of British Insurers announced that rising costs for insurers had pushed the average price of motor insurance up by 8%. At a time when the industry is yearning for smart solutions to keep premiums affordable and fair for its customers, a data-driven approach to insurance might just be the key to success. In any case, it’s worthwhile to investigate how new market entrants such as Tesla are aiming to shake up the way car insurance operates today.
How data is collected
Even those that have a limited understanding of Tesla’s business model will likely be aware of the amount of data it collects from its cars. Avoiding the ethical aspect of data collection and the methods through which the data itself is collected from Tesla drivers, the question of how this data can be used to benefit insurance customers is certainly interesting.
The obvious use of data is increasing safety. In this area, Tesla certainly wasn’t the first car manufacturer to explore the use of data to develop innovative solutions to keep drivers safe. In fact, Volvo has been analysing crash data and feeding insights into the design of its cars since the 1970s.
Where Tesla differentiates itself from competitors is the sheer amount of data it is able to collect. Each car is fitted with sensors, cameras, and radars, that constantly collect information about the driver and other cars on the road and feed that information back to a central hub. That allows for accurate auditing of driving skills, including the evaluation of risk and recognition of sharp acceleration or breaking, to determine the likelihood of an accident on the road. Accuracy is key here, encouraging positive driving behaviours and allowing safe drivers access to lower monthly insurance costs.
Why Tesla’s move is so significant
Intelligent data collection could drastically change the way insurance premiums are calculated. This is because relevant data on each individual driver could determine the cost of their insurance in real time, thus providing a vastly more accurate alternative to the algorithms currently used by motor insurance providers.
Again, it’s important to think about the implications of data-driven car insurance beyond the luxury EV segment. This is because, ultimately, manufacturers will find ways to collect data in smarter, more efficient, and most importantly, cheaper ways. Once this kind of data collection becomes commonplace, all drivers will be able to benefit from more personalised insurance premiums that accurately reflect the way they drive.
For example, insurance for first-time drivers has typically always been high. However, with intelligent data collection built into each car, insurance providers would be able to lower the cost of the monthly premium based on the driver’s behaviour. Whilst insurers have used black boxes to collect data around driving behaviour for years now, premiums for first-time drivers have remained high. The difference with Tesla’s proposition is that in-house insurance can undercut high premiums due to the quality of data it is able to collect.
Choosing the right partner
The difficulty faced by insurers and car manufacturers alike isn’t how to collect data, but how to use that data in an intelligent way. Data can be like a stormy sea, difficult to navigate and seemingly endless. Drawing valuable insights from complex data will be the most important step to achieving success for those organisations seeking to take advantage of data-driven insurance.
In order to make sense of the data they collect, these organisations must find a strong partner to guide them through. If you’re interested in finding out more about how we can draw value from your data, get in contact today.