Can we create a new kind of car insurance for a world where we share cars?
By 2030, the private car, once a proxy for American culture itself, may be dead. Millennials are either none too thrilled at the prospect of purchasing a car, or just can’t afford one. Either way, between 2007 and 2011, the number of people between the ages of 18 and 34 who did so declined by 30%. Economists have estimated that private car ownership on the whole will decline in the U.S. by 80% in the next decade or so.
The implications for this shift are enormous. Car manufacturers will scramble to stay relevant, and perhaps, the end of America’s love affair with the car could usher in more investment in public transit and safe, walkable, low-carbon streets. But it will also give rise to another quandary: What will happen to insurance?
As it currently stands, the auto insurance industry is built around a model of private car ownership. Currently, insurance premiums attach to the car, not the driver. So if you lend your car to someone else, who crashes it, you, as the owner of the car and the holder of the insurance, would be liable to pay damages, not your friend. It’s easy to see how this model fails to translate across shifts in car usage. What if, as is becoming an increasingly popular idea, you decide to subscribe to a program like BOOK by Cadillac, which lets you rent different cars throughout the year for a flat monthly fee? Or if you swap out your car for a Car2Go or Zipcar membership, or just rely on Lyft and Uber? Or decide to use an app like Turo to rent out someone else’s car for a trip?
In giving up private cars to the sharing economy, perhaps the thing we should be keeping for ourselves is insurance. A new startup called Arity–a subsidiary of the insurance giant Allstate, tellingly—is doubling down on helping insurers build out a new model based on driver behavior, not car ownership or traditional demographic factors like gender, zip code, or vehicle model. Arity is using sensor data from smartphones and telematics connections inside cars–combined with traditional metrics like insurance claims history–to create personalized “driving scores” for customers. An algorithm processes behaviors like hard braking, speeding, running lights, and frequency of car usage to build the score, which then influences how much drivers pay for their plan. And crucially, hope is to cover drivers regardless of what car they get into.
This sort of “usage-based insurance” model is not new–companies like Progressive and State Farm have used driver behavior data to influence individual insurance plans. Arity launched in 2016, in fact, out of a previous Allstate program, called Drivewise, which launched in 2010 to use sensor technology in cars to map driver behavior and adjust premiums accordingly. But Arity, according to the company, has developed more sophisticated tech to more accurately capture and analyze driver behavior. And by creating a product around this model that it can sell, it hopes to make usage-based insurance go mainstream.
The startup offers devices that connect to the car’s diagnostic port and a software development kit to track everything from how fast the car is moving, how suddenly a driver brakes, how sharply they turn, and how many miles they accumulate. It also developed an app that tracks location and other data; in February, it rolled out a new version that incorporates data on distracted driving and phone use. Arity sells the software to other insurance companies like Esurance aiming to build out more driver-based plans. It’s also eyeing partnerships with mobility companies like Uber, which could use the data to create more behavior-based driver scores. As Arity president Gary Hallgren likes to say: “I would want to know that my Uber driver has a good rating because he is, in fact, a good driver, rather because his car smells good and he had a good radio station on.”
Scaling up data around driver behavior also has broader implications for cities, Hallgren says. For instance, Arity is partnering with the city of Chicago, where it’s based, to share data on where spikes in poor driver behavior occur. The partnership is helping the city identify speeding-prone stretches of road, intersections where drivers don’t stop, or corners where they turn especially sharply. This data will help Chicago advance its Vision Zero Action Plan–part of a global effort to reduce traffic injuries and fatalities through better street design and policies–by targeting infrastructure improvements and adjusting enforcement.
These are appealing applications, but Arity will still face an uphill battle in individual customer adoption. Even though usage-based insurance programs tend to reduce costs for customers–Allstate’s Drivewise program shaved up to 15% off a user’s premium–people still tend to balk at the invasion of privacy inherent in having their every move in a car tracked and analyzed. Only around 10% of insurance customers opt into data-based plans. But Hallgren thinks that the potential cost savings of having safe driving rewarded with discounts could nudge people both toward usage-based insurance plans, and hopefully, better driver behavior.
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