Connected cars are vehicles equipped with a large amount of sensors, which make it possible to gather real-time data of that specific vehicle and of the behavior of the driver inside the car. Some examples of those data collections are hard acceleration/braking, distance traveled and speed.[1]
In combination with the fact that these cars can access the internet, can communicate with smart devices, other cars and road infrastructures, these connected cars are possibly going to play a large role in the Internet of Things.[2]
All these data points can be used in numerous of ways and situations, but for one industry the connected car has a huge impact: the insurance industry. The data that connected cars generate makes it possible for insurers to determine insurance rates based on the individual behavior of the driver. Every person drives in a different way, and because driving behavior data is known for every single person, insurers can determine insurance rates and personal premium offerings based on real time data, instead of historical/perceived data.[3] This trend is now known in the industry as Usage Based Insurance (UBI).
Usage Based Insurance makes it possible for insurers to calculate premiums based on different metrics, which form a driving behavior profile[4]. It enables the insurer to offer careful drivers with a good driving pattern a discounted rate, whereas drivers that have a more aggressive, and thus riskier driving pattern, are charged with higher rates.[5] This changes the industry incumbents business models. While traditional insurers have been determining car insurance rates based only on the drivers personal information, connected cars will make it possible to map driving behavior and assess risk way more accurately. Usage Based Insurance will change the car insurance industry and will save the players that follow this trend a lot of money in the future.
Sources:
- https://ims.tech/opinion/connected-car-insurance/
2. Coppola, Riccardo; Morisio, Maurizio (2016). Connected Car: technologies, issues, future trends.
In: ACM COMPUTING SURVEYS, vol. ACM Computing Surveys (CSUR) Volume 49 n. 3.
3. https://ims.tech/opinion/connected-car-insurance/
4. Coppola, Riccardo; Morisio, Maurizio (2016). Connected Car: technologies, issues, future trends.
In: ACM COMPUTING SURVEYS, vol. ACM Computing Surveys (CSUR) Volume 49 n. 3.
5. Yiyang Bian, Chen Yang, J. Leon Zhao, Liang Liang (2018).
Good drivers pay less: A study of usage-based vehicle insurance models, Volume 107, p. 20-34
