By VALERIE RABURN
Source: The Wall Street Journal
Google ’s new foray into the American auto-insurance market will likely bring in a good chunk of revenue, what’s precious to the Silicon Valley giant is the mass of data it will be able to collect.
In March, the company launched a U.S. version of its Google Compare auto-insurance site, which has been up and running in the United Kingdom since 2012. The U.S. site allows consumers to get quotes from a dozen auto-insurance companies, including MetLife and Mercury Insurance. The rollout is starting with California, but Google says the site will be open to residents in other states soon.
At first glance this appears to be simply another enticing revenue stream for the company. Google Compare aggregates insurance quotes from more carriers than any one consumer could possibly juggle on his own, which will draw shoppers looking for the best deal. Google gets paid each time a user on the site clicks through and buys a quoted policy.
Yet consider how all this sifting of auto-insurance rates will position the company: Could Google turn this revenue-generating learning experience into a more lucrative opportunity to underwrite its own insurance policies and displace traditional carriers—especially once driverless cars become a reality?
Consumers using Google Compare enter their demographic and vehicle information, just as they would to get a quote on the website of a big-name carrier. Google then is able to see—and subsequently analyze—the rates that more than a dozen insurers return to that customer.
This broad understanding of how auto-related risks are priced in the competitive market could allow the company to insure tomorrow’s vehicles, or simply roll the cost of insurance into the retail price of Google’s own driverless car once it hits the market. That’s one way for Google to become the exclusive insurer of its driverless cars, firmly slamming the door on any would-be competitors.
There’s a reason that Google Compare went live in the United Kingdom, where it now presents quotes from 124 companies, before it was introduced here. The U.K has already approved testing of driverless cars on public roads. U.S. regulators are being more conservative, taking time to think through the implications of the new technology.
For example, government representatives and several companies—including Ford, General Motors , Honda, Toyota and Xerox , where I work—have joined with the University of Michigan and the Michigan Department of Transportation to build Mcity, a 32-acre simulated town that will test various types of connected and autonomous vehicles. Mcity, which includes several miles of roadway, roundabouts, crosswalks and other obstacles, is slated to open in July.
It’s not difficult to imagine how driverless cars will change consumer habits and choices. Fewer people will buy cars, as ordering a vehicle from an unmanned car service will be cheap and convenient. In some ways, this will bring the luxury of a chauffeur to middle-class families and convert drive time into bonus time. Google reportedly has invested $258 million in the app-based ride service Uber, which recently announced its own initiative to research autonomous vehicle technology.
All this will upend the auto-insurance market, which has annual revenues north of $150 billion. For one thing, the businesses that own and furnish cars for just-in-time transport will be responsible for insuring them. For another, the accident rate with self-driving vehicles will be but a fraction of what it is today, since human error will be eliminated from the equation. That will push insurance payouts and prices way down. After an accident, the onboard computer and sensors will be able to determine whether it was caused by a poorly designed algorithm or a parts failure.
Since often fault won’t be an issue, auto insurance could come to resemble general product liability insurance, similar to that held by manufacturers of everything from stovetops to trampolines. Hence the opportunity for Google, armed with mountains of data on the evolving market, to confidently bundle insurance into the price of its driverless vehicles.
The bottom line: In the short term, insurance carriers participating in Google Compare might draw consumers away from the big-name players. In the long term, not only could personal auto insurers struggle to stay afloat, but commercial insurers could be muscled out of the market as well if Google—tomorrow’s auto maker—gets into the business of managing what happens when cars collide.
Today’s traditional insurance carriers might want to explore alternate lines of business. The velocity of change over the next 10 to 15 years will be unprecedented. It will be interesting to see how the insurance industry responds.
Ms. Raburn is chief innovation officer of insurance services at Xerox.