How smart tech could lower car insurance premiums

Summary

Cars are getting smarter. Vehicles equipped with Advanced Driver Assistance Systems (ADAS) come with features such as lane departure warning, active park distance control and sensors to slow or stop vehicles in order to avoid a collision. 

This technology has the potential to reduce motor accident frequencies up to 25% and cut car insurance premiums by USD 20 billion by 2020, according to research by Swiss Re and HERE.

However, insurers must collaborate with motor manufacturers if they want to access this data and accurately assess ADAS technologies as part of their risk pricing models.

To help insurers with this task, Swiss Re is working with BMW to develop an ADAS risk score algorithm, which will be available from 2019.

This partnership points to a future where car manufacturers and insurers share information and collaborate to improve road safety and create tailored motor insurance products.

In depth

Sometimes your eyes can play tricks on you.

Failing to see what is on the road is the biggest cause of road accidents. UK statistics show that in more than 40% of crashes, a driver failing to look properly was a major contributory factor.

Technology may not be able to fix lapses in our concentration, but it can intervene to reduce the chances of crashing.

Around a quarter of new cars today come with Autonomous Emergency Braking (AEB) systems that will alert the driver to a potential collision, then apply the brakes if the driver fails to act. Still more are fitted with forward collision warning systems that provide the warning without automatically braking.

This technology is just one of a range of intelligent driving aids and safety measures that are collectively known as Advanced Driving Assistance Systems (ADAS).

By 2020 the research predicts that every vehicle will be fitted with some form of ADAS technology, with an average of 1.7 systems installed per car.

Research of the BMW Group and Swiss Re show that Emergency Brake Assist alone has the potential to reduce rear end accident frequencies by more than 30%.

Cutting premiums

Mass adoption of ADAS technology is likely to be good news for both road safety and car insurance premiums.

Basic ADAS technology such as forward collision or lane departure warnings could reduce accidents by 16.3% on motorways, and 11.6% on other roads. More sophisticated ADAS technology like AEB and lane-keeping assistance could have an even greater impact, reducing accidents by 25.7% on motorways and 27.5% on other roads.

Fewer accidents means fewer insurance claims, which can in turn help push down the cost of motor insurance policies for consumers.

Research by Swiss Re and HERE has found that the increased road safety resulting from widespread ADAS adoption could help cut USD 20 billion from annual   premiums by 2020.

However, the tools that insurers are currently using when factoring ADAS technology into their risk calculations lack the appropriate level of detail to properly reflect the safety benefits, according to Swiss Re’s Head Strategy, Products & Technology Sebastiaan Bongers.

“Most insurers do not yet take a risk management approach of systematically looking at ADAS and pricing this into a motor policy,” Bongers says.

Instead, explains Bongers, insurers typically take a broad view where they assess the frequency and severity of claims for vehicles with these technologies versus those without ADAS.

“What insurers can’t do is perform more granular analyses as they do not know which ADAS features are installed, how much safer these systems are, and to what extend drivers use these systems,” he says.

Diving deeper into data

To remedy this situation, insurers must work closely with motor manufacturers to secure the level of detail they need on ADAS technology, allowing them to price car insurance premiums more accurately.

“Vehicles are getting increasingly connected, and car manufacturers are the ones collecting the data,” says Andrea Keller, Senior Strategy & Partnership Manager at Swiss Re.

“If that data is shared with the insurance industry, insurers can develop policies that are tailored to such technological advancements.”

It is for this reason that Swiss Re has partnered with BMW to develop an ADAS risk scoring system that will be available for insurers to use from 2019.

The system uses an algorithm built on three sets of data analysis:

  • Examining historical datasets to compare the accident frequencies and claims severities of individual vehicles with certain ADAS versus those without such ADAS
  • Working with BMW engineers to simulate the effect of ADAS technologies on the most frequently claimed incidents, such as rear end crashes
  • Testing ADAS technologies in a variety of real conditions, such as testing the effectiveness of AEBs on a test track

“The algorithm then looks at the results from these three analyses and also takes into account the geographies, for example whether the car is used in Germany or in Italy,” says Keller.

“And it comes up with an ADAS risk score that helps insurers consider the safety of that vehicle.”

As ADAS technologies are often optional extras in new vehicles, each car has its own unique combination.

By partnering with BMW, Swiss Re is able to know which individual vehicle has which ADAS feature installed.  

Insurers can take the ADAS risk score for an individual vehicle and build it into their own rating model where they look at other elements relating to the driver, such as age and claims history.

“As more and more of the tasks of the driver are given to the car, insurers shouldn’t just price the risk according to the person driving the car, as it’s been traditionally done,” says Keller.

“They need to also consider what vehicle the person is driving.”

Whole market potential

While at present the ADAS Risk Score only applies to BMW cars, Swiss Re plans to broaden its scope.

“It’s focussed on BMW for the moment, but both BMW and Swiss Re are approaching other car manufacturers to see whether they want to come onto the platform,” she says.

“It’s definitely both of our ambitions to widen it to the whole market, because BMW and Swiss Re understand that this only makes sense for primary insurers once they can apply it to a bigger share of their book and not just BMW vehicles.”

The benefits of such a partnership between insurers and car manufacturers extends beyond making insurance policies more accurate and potentially lowering premiums.

“It can help car manufacturers understand how effective their systems are,” Keller says. “Feedback from insurers on claims frequencies and the effectiveness of these features helps manufacturers improve their technology.”

As this happens, there are likely to be fewer and fewer road traffic accidents, making the roads safer for everyone.

Talking points

“As more and more of the tasks of the driver are given to the car, insurers shouldn’t just price the risk according to the person driving the car, as it’s been traditionally done. They need to increasingly consider what vehicle the person is driving.” Andrea Keller.

 

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