The Rise Of Real-Time, Context-Based Insurance

A small insurance startup, Root, has launched a car insurance specifically designed for Tesla vehicle owners that reduces the price of the policy the longer the vehicle runs in autonomous mode, on the basis that this mode is much safer than driving manually. Thus, drivers who spend a lot of time on the highway or in conditions where they can activate the autonomous mode will pay less insurance.

The idea is based on the fact that a vehicle is increasingly a connected platform, a smartphone on wheels from which we can obtain a constant flow of information. To sign up for a Root policy, which typically offers much lower prices than its competitors, you must download an app that allows the company to access GPS, accelerometers and gyroscopes data on your  smartphone, making it possible for the company to evaluate your driving.

After about two to three weeks driving with the app, enough for the average driver to forget about the app and go back to his or her typical driving habits, the algorithm has created a user profile that includes how much time the vehicle is in use, frequent destinations, whether drivers change lane excessively, their driving speeds, to what extent they respect traffic rules, or if they use their smartphone while driving, among many other things. After that period, the company claims it stops monitoring. Drivers receive a report on their driving, with some 30% of applicants rejected, that allows the insurer to reduce its prices by accepting only drivers they consider to be low risk and thereby increasing the average quality of their customer pool, which in the end means fewer payouts.

Root is operating at a very small scale: so far, only in Ohio, where the likelihood of finding many Tesla owners is probably low. But the idea of a context-based insurance policy that adjusts its price depending on the circumstances or our driving is undoubtedly original, and could be applied to many other situations from an insurance perspective. The company has not yet contacted Tesla, but believes that even without using vehicle data, its machine learning algorithms can deduce at what times the car is driving in Autopilot. Root wants to reach an agreement with Tesla to use data generated by the vehicle itself, which would allow even greater precision. Although Tesla has not yet commented, it has previously shown an interest in informing insurers about the added safety of its Autopilot. Likewise, the company has been open to the possibility of sharing the data generated by its vehicles with government agencies or with other companies and nothing seems to indicate that it would oppose the owners of its vehicles if they freely decide to share their driving data in exchange for a cheaper insurance policy.

At the same time, Tesla appears to be moving forward with the idea of including accident insurance and maintenance as part of a bespoke package to its customers. The initiative began in the Asian market, where most of the vehicles sold by the company already include this optional package in their price. Tesla wants to let insurers know that its vehicles are much safer than those of other manufacturers, so they can offer more competitively priced policies. At the moment, the company is working on this product with players from the insurance industry, but has not ruled out providing its own policies and becoming its own insurer if it is not able to obtain the right prices for what it considers to be a very low level of risk.

The idea of insuring something based on data generated in real time from our hyper-connected world is not new: for a number of years now, insurance companies have offered lower prices if owners reduce risk through technology, such as installing locating devices on new vehicles.

However, as the internet of things becomes a reality, the possibilities increase notably, raising hard-to-answer questions along the way: should companies offer lower health insurance policy for people known to lead healthy lives due to information provided by their wearables or connected scales? How about homeowners with connected devices that can provide early warning of flooding or fire? Some home insurance policies, in fact, already offer discounts if the owner has an alarm installed in the home and even taking into account its features.

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