Prepare for Change: Automakers Entering the Insurance Industry

GM’s OnStar Insurance Service
General Motors’ onstar auto insurance is following a model similar to tesla offering insurance with the technology used in their vehicles. While usage-based car insurance isn’t a new concept, automakers have an edge since they can incorporate the necessary technology directly into the car’s systems, unlike traditional solutions that rely on mobile apps or plug-in devices.

Unlike Tesla, onstar auto insurance is available to all vehicles, not just GM models. However, the special discounts are only offered to newer GM vehicles (2015 and later) equipped with OnStar systems. While initially offered in Arizona, GM plans to expand its usage-based insurance program to additional states in 2021.

“OnStar Insurance will promote safety, security, and peace of mind,” says Andrew Rose, president of OnStar Insurance Services.

GM’s entry into the insurance market utilizes advanced technology to help reduce car insurance premiums. For example, customized plans are based on telematics data, so drivers who frequently engage in risky behaviors like hard braking or speeding may face higher premiums. Additionally, OnStar technology offers safety features, such as its Automatic Car Response Service, which immediately notifies certified advisors to dispatch emergency help in the event of an accident.

The OnStar Smart Driver feature analyzes car data and provides drivers with suggestions for safer driving. This not only helps reduce risks but can also result in greater discounts for policyholders.

Automakers entering the insurance market are aware of their lack of experience compared to traditional insurance providers. To address this, GM’s onstar auto insurance relies on American Family Insurance subsidiaries to handle underwriting and claims processing.

Ford’s Auto Insurance Offerings
Ford, too, has entered the insurance space but in a slightly different way. The company claims its service can lower premiums by up to 40% by equipping vehicles with monitoring devices to track driving habits and vehicle usage. Unlike Tesla, Ford is working with established insurance providers like State Farm, Allstate, and Liberty Mutual to offer drivers a pay-per-mile insurance model based on data gathered from Ford's vehicle technology.

Are Traditional Car Insurers Ready for the Tech Shift?
Emerging technologies are transforming modern vehicles, and auto insurers must adapt accordingly. One of the key questions is how automakers are able to offer such significantly discounted premiums, a challenge that traditional insurance companies are finding hard to match.

Calculating insurance rates involves complex actuarial work that predicts future costs. Traditionally, pricing was based on averages, which often meant that good drivers paid higher premiums. Now, automakers are using data from embedded vehicle technology to fine-tune pricing based on individual driving behaviors.

Although traditional insurers also use telematics, they typically rely on mobile apps or devices plugged into the car’s onboard computer system. Automakers, however, use embedded sensors within the vehicle itself, providing more accurate data.

To access this sensor data, insurance companies are exploring partnerships with car manufacturers, as Ford has done. The key takeaway is that the company that can collect and leverage the most accurate data will have a competitive edge. Moving forward, the success of car insurance providers will likely depend on technological innovation and close collaboration with insurtech companies to benefit consumers.