Auto Manufacturer and Insurer See In-Car Connectivity Systems as Win-Win in the Fight for Market Share - How Far Will Regulators Let Them Go?
In surely a sign of things to come, Ford Motor Company and State Farm announced on May 30, 2012, that they have partnered to offer auto insurance savings. The program allows State Farm customers with select Ford vehicles that have the SYNC in-car connectivity system to reduce their auto insurance premiums.
Specifically, by using the SYNC system, Ford owners will be able to provide verified mileage information to State Farm necessary to qualify for State Farm’s Pay-As-You Drive (PAYD) program, which may allow savings of up to 40%.
The SYNC system allows owners to request a Vehicle Health Report directly from the vehicles engine’s computers, which will provide odometer readings and other diagnostic reports about the vehicle’s performance and maintenance needs. The Vehicle Health Report is a no-subscription feature that is free for vehicle owners for the life of the vehicle. Therefore, Ford owners whose vehicles are equipped with the SYNC-system may qualify for auto discounts for years, and without having to pay a monthly subscription.
In the highly competitive automotive and auto insurance markets, partnerships such as this program present a win-win situation. In the fight for market share, the auto manufacturer can differentiate the competition by offering technologies that could allow insurance savings while insurers get a chance to secure new policyholders with a built-in retention mechanism.
Since PAYD programs now exist in many states and are offered by many insurers, we expect to see more partnerships like this from others auto manufacturers and insurers. We also expect to see auto manufacturers and other technology providers such as cell phone manufacturers and telematics providers forge similar partnerships in other areas to offer consumers savings on all types of products and services.
The issue is how far will state insurance regulators allow these types of programs to go in the name of protecting privacy?
While it is relatively safe to assume that most states allow or will allow technology (whether embedded or after-market) to purely report or verify mileage information to insurers for the purpose of calculating premium as California does, what about other, and more arguably meaningful, types of information such as location information, sometimes referred to as GPS information, or information on braking or accelerating patterns.
Information other than mileage may be a better indicator of risk. For example, frequent braking can lead to more rear-end accidents. Insurers also predict that these systems encourage safer driving or reduced driving, which could lead to fewer crashes and insurance claims.
There are excellent arguments as to why more information collection is better and allows better products and services for consumers. However, regulators, in order to stem abuse, may feel compelled to prohibit insurance companies from collecting any information other than mileage driven, or from selling to or sharing such information with other companies (so that other product and services can be offered to the consumer), and/or to require insurance companies to allow audits of the information so collected.
Only time will tell how far the regulators will let these programs go, and in the end consumers may be deprived of meaningful products and services.
For more information or any questions, please contact Tim Moroney at 415-743-3713 or by email.