Car manufacturers are focusing on embedded insurance for expanding their market share

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Globally, the car insurance market is changing rapidly, where conventional car insurance policies are getting replaced by connected car insurance policies. Moreover, the pandemic supported this trend to some extent. During the pandemic, the usage of cars came down, and policyholders wanted a price based on the car's actual usage. Consequently, the trend created a growth opportunity for OEMs by offering Usage-Based Insurance (UBI) policies.

The OEMs are using telematics to offer customized insurance rates to attract consumers. In the United States, demand for telematics rose very high during the pandemic, and carmakers launched telematics insurance programs to expand their market share.

In October 2021, Tesla announced to launch of its UBI program in Texas. The company brought this product after two years of launching a traditional car insurance product. The underwriting of the UBI product will be based on Tesla’s proprietary scoring system that evaluates the driving habits of the policyholder, such as instances of forward-collision warnings, hard braking, turning corners aggressively, unsafe following, and forced autopilot disengagement. Price revisions will be undertaken based on the above, with 20-40% savings on the premium for average drivers, as compared to the pricing of the other insurance providers.

Tesla got a competitive edge over other insuretech companies as it only concentrates on the customer's driving behavior and rules out all other factors such as distance, policy holder's age, etc. Moreover, unlike other UBI insurtechs, Tesla does not need a physical device or an app to be installed; instead, the car itself has the option embedded into it. Therefore, it is expected to support the company's expansion plan in this segment.

Other players such as Kia, Hyundai, Mercedes-Benz, Stellantis, Toyota, and Volkswagen are providing connected auto insurance and reaping the benefits of the business move. While there are instances where the car makers partnered with insurance providers, such as Ford partnered with Arity, General Motors with American Family to extend their product offerings.  

To know more and gain a deeper understanding of the global embedded finance market, click here.