16th February 2017
Will telematics, connected and driverless cars help households to enjoy more disposable income?
Whatever happens politically, economically and otherwise on the world stage, one thing that matters to a huge chunk of us, from singletons and young families to those with grown-up children along with people in retirement, is the feeling of stronger financial security and having more disposable income for the finer things in life.
With many individuals and families not exactly finding it particularly affordable to run a car these days due to factors such as fuel price fluctuations, road tax and IPT increases, it might sound slightly bonkers to state that innovation in the automotive sector “is the single biggest opportunity that exists to raise household incomes”1 – but that’s exactly what Tom Wilson, CEO of American firm Allstate said last month at CES 2017.
Leading through change
Wilson stated that the entire transportation system and the automotive industry, including insurance services, are changing in a big way. Acknowledging that insurers need to adapt to changing systems, technologies and markets in order to continue to serve their customers, he briefly outlined in an interview with Fox Business that collecting driver data to determine driver risk is a key ingredient in helping customers experience more accurate and hence reduced insurance premiums, along with safer and more rewarding journeys. Young and newly-qualified drivers have been enjoying the benefits of usage-based insurance since our Carrot brand was launched and are rewarded in a quite literal way for driving safely and efficiently, which also results in lower fuel bills and less wear and tear on their cars’ components and tyres.
Wider improvements mean personal gains
“A 20% improvement in the cost and effectiveness in the transportation system is worth 5% improvement in personal income in America”, Wilson reckons. This trend will no doubt be experienced in other far-developed countries like the UK, too, although it’s worth noting that European pioneers like the Dutch and Germans are already more accustomed to ride-sharing and even cycling, whilst Americans still predominantly rely on cars, partly due to the vast distances involved.
They could see it coming
Mr Wilson’s theory that automotive technology advances will boost the spare notes and coins in people’s purses and wallets isn’t actually a new one. Back in the summer of 2014, a Cisco prediction was made that by around 2019 onwards, it’ll cost more for people and businesses to drive their cars than to let the autonomous vehicles drive them2.
Driverless cars mean cheaper transportation
It left many automotive and technology commentators scratching their heads over how driverless cars would cost less to use, with author and MD of The Devil’s Advocate Group, Chunka Mui, admitting that the 5-to-7-year prediction from Cisco was a “best-case scenario”, far from guaranteed. Against the backdrop of vehicle accidents costing the US roughly $450 billion per year (a figure that will now have risen further), Mui highlighted that “from a safety standpoint, it costs a lot to let humans drive.”3 Andreas Mai, Cisco’s Smart Connected Vehicles director, reckoned at the time that driverless connected cars would cost consumers round $2,000 less to run per year thanks to being safer and hence reflected in reduced insurance premiums.
Usage-based insurance (UBI) and gamification
“When autonomous vehicles are proven safe for roads, at scale, insurance companies will pass on significant rewards to those using such a vehicle” commented Ravi Pandit from KPIT Technologies, adding: “Even today, many insurers will pass on savings if the vehicle owners allow access to driving parameters such as speed, location, time and acceleration/deceleration patterns.” This sums up Carrot to a tee, and although the benefits are focussed on newly-qualified or young drivers aged 18-30, telematics or pay-as-you-drive (PAYD) motor insurance is becoming increasingly popular for experienced motorists, too, including those in the 60+ bracket. Drivers of all ages are beginning to engage with gamification, competing with each other to achieve the safest and most efficient driving scores, which can only be a positive thing.
When fully self-driving cars are made available for Joe and Jane Public, they’re likely to be priced at least £10,000 more for purchasers and £150 per month extra for leasers, which will make autonomous vehicles the preserve of the wealthier initially. It’s fair to say that driverless vehicles becoming a common sight on developed countries’ roads is still realistically several years away and Tom Wilson put the average age of the US car fleet at 11 years old, so it’s clearly going to take time for conventional cars to be phased out by autonomous models. In the meantime, it’s the “connected car” that will enable savings for motorists.
Writing for Wired shortly after CES 2015, Tim Kelly explored how connected cars that automatically keep in regular digital contact with dealerships and manufacturers will be serviced and maintained more promptly, signalling another cost saving for motorists4.
Connected apps, including aftermarket solutions, are starting to be able to provide drivers and indeed fleet managers with predictions over which car components are starting to fail, how much it’s likely to cost and where they can get such issues fixed more cheaply, helping eliminate ‘automotive ignorance.’
Connected cars will also increasingly help people to improve their driving techniques and plan their routes more efficiently, saving time, wear and tear and, ultimately, money. The ‘big data’ shared by connected cars with automotive and other retailers will bring about a wide array of relevant discounts and offers, again resulting in indirect savings for motorists.
Audi recently announced that selected new Q7 and A4 models in the US will be connected to traffic lights as part of its journey into “vehicle to infrastructure” (V-to-I) technology5, with talk of future incarnations communicating with compatible cars’ sat nav systems to keep them moving through as many green lights as possible – once more indirectly contributing to boosting the money in motorists’ back pockets.
Households will ultimately feel flusher when car ownership and car leasing have been largely replaced by ride-sharing models in a world in which few people own vehicles any more, even in affluent countries. Alex Hearn, writing for The Guardian, mused over precisely this point back in 2014: “If our cities begin to fill with autonomous cars that can simply pick up passengers and take them from here to there, then, in that world, why does anyone need to own a car at all?”6
Returning to Tom Wilson’s interview on Fox Business after CES 2017, he’s right in asserting that the entire (automotive) system is changing, including motor insurance, so companies like his and indeed ours are continuously evolving to provide what customers need and want. Our Trak Labs division in Manchester keeps at the forefront of technological trends and innovations to aid the drivers of today and tomorrow.
With the ONS7 putting the median UK household disposable income for 2016 at £26,300, it means that achieving anywhere near a 5% increase on the back of a 20% improvement in the cost and effectiveness of transport would roughly equate to an extra £1,315 in the back pockets and piggybanks of UK families – something definitely not to be sniffed at. We certainly live in very exciting times for the automotive sector and society in general, with many advantages to be enjoyed, made possible by telematics, connected and autonomous technologies.
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