Insurers will turn your car into a marketing machine

You're driving along when one of your car's computer sensors indicates your left front tire is going flat. Then you get a message on your Bluetooth telling you about a tire dealer who's offering a discount.

Meet the future of car insurance, where auto insurers will appreciate your business more than you'll ever know -- and in ways you may never know. It's a future they're working hard to bring into the present as insurers hitch a ride on your car's onboard computer system. Their goal: turning your car into a mobile marketing machine.

The ingredients to do this are already in the mix. Cars today are loaded with computer technology -- about 70 different types, by one estimate -- and that number is expected to multiply as we move toward driverless cars in the next decade.

All that technology should make us safer. But it will also make us better customers for auto insurers and companies they choose to partner with, according to a recent report by global consulting firm McKinsey & Company. As cars begin to operate independently and drivers become less focused on the road, industry giants such as Amazon (AMZN), Fidelity and General Motors (GM) could wrangle for advertising space on the information highway inside your car.

And insurers may be more than willing to let them in. Auto insurance is now a $183 billion business, according to the Insurance Information Institute, with car insurance rates on the rise.

But those premiums, along with profits, could fall off in the next few years, perhaps to the tune of $20 billion by 2020, as drivers have fewer accidents. Fender benders will decline due to self-parking devices and warning signals. Full-blown collisions won't happen as often when crash-avoidance systems take hold seconds before a human foot could hit the brake.

Warning systems, such as Progressive Insurance's (PGR) "Snapshot," have already indoctrinated drivers to heed the beeping noise that erupts whenever they speed, especially when they can receive a 10 percent discount for good driving behavior. But ultimately, the driverless car will take over even this function.

So, if cars become auto-driven and super-safe, what will car insurers actually do to make money? McKinsey's answer: "Unlocking new sources of profit from the connected-car system."

Car insurers' first step is to use all their diagnostic devices to collect real-time data about their customers. Previously, insurers relied on driving history going back several years. Now, they'll have up-to-the-minute access to millions of motorists: where they's going, at what time, how long does it take to get there and, especially, how they're driving.

Known as "big data" when it's fed into supercomputers that can analyze it endlessly, this information can help motorists get around bottlenecks in the road ahead. But it can also be sold to businesses to help them predict where they should build convenience stores and gas stations, put up parking garages when space is restricted or erect flashing billboards.

Anyone in the car business, such as repair shops and auto parts stores, would salivate at the chance to data-mine the treasure trove of information your car is sending your insurer. If you've accumulated tickets, your insurer could text a message that a driving course is available to alleviate them. If your tires are losing pressure, you might be alerted about a discount at a tire store your insurer recommends.

If your warning lights flash and your car is more than five years old, your insurer could recommend a new- or used-car dealer. And if you'll need money for that car or another big purchase, your insurer could suggest a bank or financing agency.

And you wouldn't need to use your phone to ask Siri about any of this because your insurer could tell you through your car's Bluetooth system or text your connected smartphone without ever being asked.

All this could be done under the guise that your insurer is being ... well, helpful. That would certainly be an image makeover for an industry that has seldom been seen as friendly, because with insurance, like taxes, you either pay up or lose out. In virtually every state you can't drive without insurance.

"Interactions [with customers] have been generally disagreeable because they often deal with contract negotiations, claims management and other potentially contentious processes," said the McKinsey report.

But that could change, or at least insurers hope it will. "Through more regular touchpoints, an insurer could increase its consumer engagement and strengthen customer loyalty," McKinsey said. That would include "user-friendly" communications and advice on your driving, weather and traffic conditions, and even checking your heart rate and blood pressure through the steering wheel.

One big advantage, according to McKinsey, is creating customer loyalty. If you get a lot of cool stuff from your insurer, you're likely to stay rather than switch just to get a cheaper rate.

Other companies, like Verizon's (VZ) "hum," are also trying to connect with your car and do the same thing. But insurers have a big advantage. They already have your money, and they can horse-trade with you for discounts if you do what they suggest.

Insurers have another advantage: bundling. Most car insurers also offer home insurance and perhaps even life insurance, as well as financial products. All of these are sources of additional information that can be used to sell products.

So who owns all the data that your car is sending out -- or could? Obviously your insurer, if you allow it. Millions of motorists already do, and nearly every insurer is lining up with its own "telematics" program to get that info.

But do you have the right to know what your insurer knows? The issue is now under review by state regulators in Massachusetts. The answer could depend on whether you're using an "open" platform, where the driver knows what information is going to the insurer, or a closed one, where the insurer just collects it.

The connected car is creating its own ecosystem that includes insurers, carmakers and telecommunications giants, according to McKinsey, and each player is technically in competition with the others for the motorist's dollar.

But because they have a mutual self-interest, competition may be replaced by "coopetition," in which retailing powerhouses like Amazon partner with insurers to sell products, "managing relationships that are alternatively cooperative and competitive."

That could eventually pave the way for mergers between megastores like Walmart (WMT) and insurers like Geico.

  • Ed Leefeldt

    Ed Leefeldt is an award-winning investigative and business journalist who has worked for Reuters, Bloomberg and Dow Jones, and contributed to the Wall Street Journal and the New York Times. He is also the author of The Woman Who Rode the Wind, a novel about early flight.