As automakers load vehicles with more safety features, enhanced connectivity and over-the-air updates, some are using the technology to tap into a new revenue stream: auto insurance.
Tesla Motors Inc. started offering insurance in late 2019, and Ford Motor Co. and General Motors launched programs in 2020. Ford and GM say entering the insurance space was a natural expansion as they enhance the connectivity and safety technology in their vehicles.
Automakers "may be in a pole position to capture real-time data to improve the risk pricing/underwriting functions" of auto insurance, Adam Jonas, equity analyst with Morgan Stanley, wrote in a report in December. "At the same time, the car itself doubles as a captive mobile distribution node to engage with the customer on a subscription basis and in real time."
Traditional insurance providers have lagged automakers in technology advancement, but in an already competitive insurance market, automakers could have "a tough hill to climb," said Kyle Schmitt, global managing director of insurance business intelligence at J.D. Power.
Still, Schmitt expects other automakers will join the insurance business to gain revenue and capitalize on safety features.
An insurance role also broadens automakers' contact with customers and can increase loyalty, said Michael Benoit, partner at Hudson Cook's automotive law practice in Washington, D.C.
"Insurance is a very lucrative business. Everyone who is buying a car needs auto insurance, so it makes perfect sense for them," Benoit said.
Tesla began selling insurance to California drivers in 2019, with plans to expand to other states.
Its logic behind offering auto insurance may differ from that of other automakers because its entire lineup is electric vehicles, which tend to require costly repairs, and Tesla aims to manage the customer experience without a dealership network, Schmitt said. "They own the whole thing right down to the repairs. You can't just send it over to Dave's Auto Body to fix it," he said.
In February, Ford Motor Credit began a state-by-state rollout of Ford Insure, a usage-based auto insurance policy underwritten by Nationwide Mutual Insurance Co., now available in 43 states. Through the program, customers are eligible for safe-driving discounts, and 40 percent of insurance customers have bundled their auto insurance with other Nationwide coverage.
"Insurance was a natural way to help customers easily insure their new vehicles in minutes and take advantage of connected-vehicle capabilities to enable them to benefit from safe driving," said Jon Lane, Ford Credit director of insurance operations. "It's a perfect marriage of vehicle technology, the need for insurance and customer convenience, and another way to contribute to great Ford and Lincoln ownership experiences."
GM reentered the insurance business late last year with OnStar Insurance, using its OnStar telematics service to help determine a customer's rates and assess damage after a crash.
In addition to auto coverage, the program offers home and renters' insurance. It launched for GM employees in Arizona in late 2020 and is slated to be available to nonemployee customers nationwide by the end of 2021.
OnStar Insurance is an independent entity of GM, separate from OnStar, with underwriting from American Family Insurance.
GM operated GMAC Insurance from 1925 until 2008. Today, GM and other automakers have access to large sets of data that weren't available then, said Andrew Rose, president of OnStar Insurance Services.
GM, for example, can use the OnStar infrastructure to understand how drivers are operating their vehicles and even determine when low tire pressure may lead to an accident, Rose said.
GM has collected 121 million gigabytes of data via the 4G LTE systems on 2016-21 vehicles to help the insurance arm assess risk, Rose said.
If customers consent to sharing telematics data, GM can incorporate it into insurance pricing. "We want to make sure that if you can demonstrate good driving behavior, we want to be able to factor that into the pricing," he said.
GM plans to eventually incentivize customers to use safety features, Rose said.
Automakers' insurance lines may also improve customer experience and loyalty, especially as the vehicle-buying process becomes more digital, Benoit said.
"If I'm on a digital retailing site ... and I have the option of not leaving the site and getting insurance, that's what I'm going to do," he said.
Knowledge of drivers' safety features — and how often they use them — also could help automakers offer customers less expensive rates, he said.
"They feel confident that the likelihood of you getting into an accident is very slim," Benoit said. "They can price their premium more competitively than, say, State Farm, Allstate or Nationwide."
Automakers know their vehicles better than anyone, Rose said. "Choosing safety features in your vehicle, you should be rewarded for that," Rose said. "Our knowledge of you as a driver gives us another opportunity to win."
Michael Martinez contributed to this report.
