James Madden believes the end of his industry as he knows it is not too far down the road. And yet, he says things have never been more exciting in his line of work.
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The irony of it all? What's generating the excitement for Madden, associate vice president of IT and enterprise architecture for American Family Insurance (AFI), is the same technological advancement that's putting the insurance industry's future in question: the connected vehicle.
The Madison, Wis.-based auto insurer is interested in mobile technology, foremost for safety reasons. The connected car allows insurance providers to capture more accurate information about driver behavior, which will ultimately enable them to create sophisticated and more accurate algorithms that in turn will help them calculate premiums based on actual—rather than perceived—risk.
But embracing the cutting-edge technology of the connected car may also exact a high price for the insurance industry, Madden acknowledged. "Enhancements and improvements in this area will likely result in a decline in this [auto insurance] market," he said, speaking as part of a panel at the Fusion 2014 CEO-CIO Symposium in Madison, Wis.
Yes, it's a mad, mad, mad, mobile world. And nowhere is this more true than in the multifaceted auto industry, where car manufacturers that once seemed out of touch and needed government assistance to stay afloat are introducing cutting-edge mobile tech into their vehicles. Detroit and Silicon Valley are no longer worlds apart; rather, they're forming partnerships.
One of the most important tenets of the mobility trend is to always be within reach of your customer. With the rise of the connected vehicle, opportunities for industries of all kinds abound—after all, those car-bound customers are captive for an average of 101 minutes a day.
A mobile hub on wheels
This still-new mobility trend offers another reason, if one were needed, for CIOs to get serious about improving their companies' customer-facing mobile experiences, according to Abdul Bazzi, senior manager of application development with General Motors/OnStar. Right now, car connectivity is all about content—content coming in and going out of the vehicle.
"The next thing in vehicle connectivity is going to focus around the motorist's everyday life," Bazzi said. "They're going to be able to connect to the outside world, and you're going to be delivering services to them … and basically taking advantage of all this data that's on the vehicle."
Car manufacturers are already teaming up with technology partners in the hopes of cracking open the connected vehicle market. Vijitha Chekuri, director of machine-to-machine solutions at Detroit-based CW Professional Services and formerly an engineer with General Electric Transportation and Ford Motor Co., pointed to BMW's recently announced partnership with SAP. A prototype unveiled at the end of February uses SAP's HANA in-memory database platform to provide contextual advertisements to drivers as they are driving. Based on the car's location, Chekuri explained, the driver will be notified of things like nearby filling stations if the tank is low, and advertisements and special offers from businesses in the area. Should one choose to take advantage, in-vehicle navigation will kick in and give directions.
"We're going to see consumers be able to use the vehicle like a mobile phone: to buy apps, download apps and use the services these apps provide," Chekuri said. "A whole new ecosystem is going to be developed around this."
For Bazzi, this new ecosystem will be built around the proliferation of fourth-generation (4G) wireless. "What we're going to see with 4G is your vehicle becomes your hub; it's going to be the hotspot of your world."
Gartner analyst Thilo Koslowski believes that future is already here, enabled by the mobile Internet. He said that while 4G capability is important, 3G is quite sufficient for many of the value propositions and applications scenarios that can be envisioned with the connected vehicle.
"The added speed [of 4G] will certainly have positive benefits, but the game changer is the fact that we have mobile networks available now that allow cars to become a device platform that can tether to those networks," said Koslowski, who founded Gartner's automotive practice in 1999 in Silicon Valley.
Driving themselves out of business?
American Family Insurance is eager to make the most of mobility, Madden said, while recognizing that the "infotainment" aspect of the connected car has the potential to further distract drivers. The data collection not only helps insurance companies better calculate premiums, but also take the information collected by the connected car technology—acceleration and deceleration, speed, location and other trends—and push it out to drivers so they better understand just how great a driver they aren't, he said.
AFI is already doing this with its Teen Safe Driver Program, which, in addition to data-collecting technology, outfits vehicles with video cameras to catch what's behind something like a rapid deceleration, and makes that information available on a password-protected website. But none of this comes cheap. While the Teen Safe Driver Program is free to the consumer and acts as a preventive measure, AFI absorbs the cost of the requisite mobile technology.
"The dongles that you put in the OBD [on-board diagnostics] ports and the lack of standardization in the space make it very expensive to communicate the information through telematics," Madden said. "A lot of data is being collected in the vehicle, but just to add GPS doubles the cost of that feed."
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There's also the associated cost of sifting through all that data. Currently, for the approximately 100,000 vehicles sending telemetry data back to AFI every four seconds and geopositioning data every second, AFI is streaming that information to Hadoop.
"We primarily adopted Hadoop, and big data architectures and we're using predictive analytic tools and descriptive analytic tools to understand the results of the driving, but it's all new to us," Madden said.
But at the end of the day, it's all worth it—right? Well, yes and no. Where customer satisfaction and safety are concerned, the connected vehicle is a real boon for auto insurance companies. But the irony is, the smarter connected vehicles get (theoretically anyway), the less auto insurance will be necessary. Rather than insuring drivers, insurance might be purchased to protect the "product"—that is, the connected vehicle, Madden said.
Of course, digital disruption is putting an end to business as we know it in many industries, Gartner's Koslowski said, and the auto part of the huge insurance industry will no doubt evolve as well. But in any case, the evolution won't be overnight.
"There will be an increased demand by consumers to really make the cost [of insurance] transparent … but it will take years," Koslowski said. For starters, the change will require that other elements people use on a daily basis, besides cars, have more connectivity, and that the whole Internet of Things resonates with and is understood by consumers. "Then they will start demanding that certain accepted business models will change."
Mobile power to the people
While it may take years for the insurance business model to change, Koslowski stands by his prediction back in 2009 that, by 2016, connectivity features will be part of the consumer's buying criteria when choosing a car.
"We definitely believe, just a few years from now, we'll reach that threshold," Koslowski said. "And we believe that by the end of this decade, probably 70% of all new vehicles will be optioned with connected vehicle technologies."
And maybe one day, a vehicle's operating system will be just as common a purchase-deciding factor as miles per gallon. Someone whose "digital lifestyle" is heavily invested in Apple iOS will likely seek out a vehicle that will let them tap into that ecosystem, Koslowski said. The same could be true for Android users.
"Those are considerations people will make, but eventually they probably won't even need to do that. We'll see in the future multiple ecosystems being enabled in a vehicle, so you don't even have to make that choice."