GM joins Ford and Tesla as carmakers offering insurance

General Motors recently announced that it is beginning to offer car insurance, joining fellow manufacturers and recent entrants Ford and Tesla in the market. The announcements by the three automotive giants effectively put the rest of the insurance industry on notice that there is a new kind of competitor to be contended with. As technology and data analysis march relentlessly forward, these carmaker-based insurance options may gain an edge on the rest of the market.

GM’s new arm is called OnStar Insurance, and it builds off the company’s well-known OnStar subsidiary, which provides communications, in-vehicle security, emergency, navigation, and remote diagnostics systems to subscribers. OnStar is devoted to customer safety, and OnStar Insurance begins and ends there as well.

Not surprisingly in today’s data-rich world, the new insurance services from GM, Ford, and Tesla are based on data collected on drivers’ habits, mimicking the many usage-based insurance options now offered by just about every major insurance company. The difference, according to GM, is that with well over 20 years of OnStar driving data already collected, the company has a rich trove of information to mine for a more accurate assessment of risk – and hence pricing.

Not to mention, for buyers of GM cars OnStar Insurance has something of a captive audience to market to. Especially for customers who opt to subscribe to the OnStar service, it makes reasonable sense to simply integrate another major piece of the safety puzzle – insurance – into a one-stop shopping experience.

A key feature expected to make the insurance attractive is that with OnStar measuring your driving activity, you will be able to receive significant discounts on your insurance premium for being a safe driver. Note that this is really no different from the usage-based pricing offered by all the other insurers. But GM, Ford, and Tesla seemingly have a leg up in that their insurance services are available right at the point of purchase of the car.

Discounts will be available for drivers who obey speed limits, avoid rapid acceleration and braking, and even maintain properly inflated tires. A fully-integrated system of sensors and other safety features like OnStar, or Tesla’s built-in monitoring capabilities, allows more metrics to be observed, recorded, and used to determine pricing than the less comprehensive systems offered by insurers like Progressive, Allstate, and State Farm.

OnStar provides more opportunity for the insurer to push safe driving recommendations and positive behavioral reinforcement to its drivers, potentially increasing road safety for all. OnStar Insurance will be offered to drivers of non-GM cars as well as GM drivers, and it is being rolled out initially to GM employees in Arizona in Q4 2020. A full nationwide rollout is anticipated by the end of 2021.

Avoiding Bias

Another goal of OnStar Insurance is to further eradicate biased judgement from the insurance shopping process by focusing much more on factors that are within the customer's control. In other words, premiums will be based on individual vehicle usage, with rewards for smart driving habits that benefit road safety. Typically pricing is largely dependent on less specific characteristics such as marital status, education levels, and other metrics that don’t correlate as directly to the level of risk an individual driver represents.

Of course, with these seemingly attractive potential benefits come fairly obvious drawbacks – concerns about privacy and “Big Brother” watching over a driver’s shoulder at all times. There have been many instances in recent years where the amount of data that companies and governments have been collecting on people has been used in inappropriate ways. In other cases the data has simply not been stored with sufficient security, leading to very damaging hacks that have exposed sensitive personal and financial data to criminals.

There is no doubt that the close monitoring and data collection provided by usage-based insurance schemes offers customers potential safety benefits and cost savings. But many privacy and security experts advise caution about voluntarily giving access to such sensitive information about oneself. The potential upsides may be fairly obvious at the moment, but the full extent of the downsides may not be clear for years to come.

As thorny as this issue may be, it seems that most Americans have opted for convenience over caution on such issues. OnStar Insurance President Andrew Rose recently noted on CNBC that, “Consumers have chosen, with their consent, to share their driving data with GM. With that information, we can let you know you can get savings because of your safe driving or not. And we can give you coaching as time goes by to become a better, safer driver.”

There is a lot of uncertainty in how markets such as car insurance will evolve in the coming years, but there is no question about the fact that major auto manufacturers like GM, Ford, and Tesla have announced their presence in the market. And the rest of the industry would be well advised to sit up and take notice.