Two General Motors Corp. subsidiaries are partnering to create new products for their joint customers.
As part of a three-state pilot project, Southfield, Mich.-based GMAC Insurance and Troy, Mich.-based OnStar plans to leverage the capabilities of OnStar's in-vehicle safety and security system to offer OnStar's 2.5 million subscribers insurance products with significant potential premium discounts.
Much larger scale
"In the past, we've done some discounting with OnStar's subscriber set, but this affinity program is being carried out on a much larger scale, and with deeper discounts offered to qualified OnStar customers," says Tim Hogan, director of customer marketing for GMAC Insurance. "This program will not only benefit insurance customers, but it will go a long way in helping us enhance our loss ratios and overall risk position."
OnStar's technology has built a reputation across a broad technology spectrum. OnStar provides customers with stolen-vehicle location assistance and can assist them with remote vehicle diagnostics. Individuals who get lost driving can activate OnStar's on-board diagnostics to shepherd them to their appointed destination.
What's more, OnStar's hands-free, voice-activated cell phone capability provides a safer alternative to hand-held devices when calls must be made or received while driving. In addition, the technology has the ability to provide electronic reports about mileage patterns.
Industry experts categorize the GMAC Insurance-OnStar program as an intriguing alliance that contains some positive aspects. But, it's not the first time a program like this has been leveraged to support the auto insurance segment.
"About three years ago, IBM began touting 'pay-as-you-go' insurance driven by wireless efficiencies," says Susan Cournoyer, senior analyst for Gartner Inc., Stamford, Conn. "You pay exactly for what you use-it's very individualized. But a program like this definitely entails more complicated underwriting procedures: In rating auto insurance based on these factors, it's not just, 'I drive XYZ car and live in XYZ state.'"
Last year, U.K.-based Norwich Union launched a pilot program dubbed "Pay As You Drive," which involved fitting the cars of 5,000 policyholders with a "black box" that gathers and transmits vehicle and driving data to the carrier's back-end systems.
Norwich Union licensed the technology from Progressive Casualty Insurance Co., Mayfield Village, Ohio, which conducted similar tests in Texas from 1998 to 2001 (see "Norwich Union Launches 'Pay As You Drive' Program," June 2003, page 8).
Positive results expected
The affinity program is expected to reap positive results for both entities. GMAC Insurance, which provides a wide range of personal lines, mechanical coverages, commercial lines and reinsurance, can get immediate access to OnStar's 2.5 million subscribers as potential new insurance customers.
Conversely, GMAC Insurance will be able to push its own customers to OnStar-if they haven't already. Last year, GMAC Insurance generated more than $1.3 billion in annual written premiums in 48 states.
As part of the pilot program, Hogan would only reveal that Indiana is the first state to garner state approval, with GMAC continuing to negotiate with state insurance department officials in two other unnamed states.
When the program is launched, GMAC plans to use direct mail and marketing programs to inform OnStar subscribers about the availability of discounted auto insurance. It will also provide details through auto dealerships and via its corporate Web site.
Specifically, the new product offerings are slated to include the following features:
- OnStar subscriber discount. GMAC Insurance will begin rolling out a special subscriber discount for OnStar customers in several states, with plans for national expansion. The discount is the result of research that showed the safe driving habits of OnStar subscribers. This is in addition to the enhanced safety discount given when vehicles are equipped with the OnStar system, and premiums are adjusted accordingly with discounts up to 20%.
- Mileage-based insurance. GMAC Insurance and OnStar began piloting a new mileage-based consumer insurance concept in February. The program will offer discounts to eligible subscribers in three states as part of a test program to validate feasibility and customer appeal.
Eligible customers must have an active OnStar subscription and drive a qualified GM vehicle since OnStar's vehicle connectivity provides the basis for this service.
With the customer's permission, OnStar will verify mileage on a vehicle twice during the policy period. Because of the ability to cost-effectively gather actual mileage readings, discounts can be as high as 40%. The lower the vehicle mileage, the more significant the discount.
Clearly, the delivery of mileage-based insurance is an exciting prospect to GMAC Insurance officials.
"Mileage-based insurance provides us with a better, more efficient way to forecast risk," says Hogan. "To date, there has not been a feasible way to offer coverage based on miles driven." Hogan says consumers will embrace this concept "because it empowers them to take control of the terms of their auto insurance."
Separately, GMAC Insurance also plans to offer two new OnStar-enabled services for the GM Dealer network.
Once the program builds momentum, GMAC hopes to generate a host of new business opportunities.
However, Hogan could not provide details, adding only that "we've put together projections of what kind of new business premium we can generate from this venture, but we'd rather not get into specifics until we've completed the pilot program."
Not much value
Gartner's Cournoyer says that while the OnStar technology can be a potential cost-saving boon for those OnStar subscribers who drive less, individuals who drive more might not find much value with this program.
"I would think that the OnStar subscribers that drive a great deal would not have an interest in this program because once it's revealed how much they drive, they conceivably could pay a higher rate than what they already pay through their existing insurance provider," she explains.
Another potential barrier: It's not always advantageous for consumers to switch auto insurance, so there's a question of whether OnStar subscribers would be willing to abandon their existing providers for GMAC.
Complicating matters is that many insurers bundle a homeowners policy with auto or other lines-discounting one coverage in return for the remainder of an individual's business. Hogan says that GMAC Insurance is prepared to offer homeowners or renter's insurance. It could be part of a package deal to help win over a greater number of OnStar customers.
In the long run, industry observers are curious about how expansive a program like this could become. "IBM explored this type of program. And I would think that several technology vendors that support the insurance industry could leverage their competencies to this type of effort," Cournoyer says.
"Also, I'd have to imagine that OnStar would want to sell or license this technology to other auto insurers. Really, if there are no exclusivity terms, why limit this technology to only the parent company," she says.
