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by Jill Richmond, Jul 19, 2017

Driving the Future of Blockchains Part Four: Introducing Usage-Based Insurance


Gem Auto 4

The new frontier of a transformed mobility ecosystem, one that could accelerate the development of autonomous driving technology, is predicated with a firehose of data.

One of the most critical uses of that data is being examined by the Toyota Research Institute (TRI).  The institute is spearheading a unique partnership between the Toyota Insurance Management Solutions (TIMS) — Toyota’s joint venture telematics car insurance company —, the Japanese insurance company Aioi Nissay Dowa Insurance Services and the blockchain platform company Gem. The goal of the partnership is to build and test a new product with almost immediate return on investment: a usage-based insurance platform that will be critical for fostering a digital environment where users (both businesses and consumers) can securely share driving and autonomous vehicle testing data and store vehicle usage information that can be used to set insurance rates, among other things.

“Luckily, we are working with the perfect partnerships between TRI, TIMS and Aioi Nissay Dowa,” said Micah Winkelspecht, Founder and CEO of Gem. “Blockchain technology is the perfect tool to connect these systems that speak but do not necessarily have a shared infrastructure and we are operating to test this new infrastructure that can enable, create incremental efficiency and evolve into a much larger ecosystem.”

UBI and the Future of Pay-How-You-Drive

As advancing technology facilitates new opportunities for the insurance model, a whole world of possibilities opens up. Now that usage-based auto insurance (UBI) has established itself as a real possibility, the future of pay-how-you-drive and pay-as-you-drive insurance is becoming part of the new mobility ecosystem.

For starters, in the coming years auto insurers will gain new sources of complex data for UBI programs. Today’s consumers simply enjoy learning about themselves, which means that each day, more and more people enjoy monitoring themselves and lifelogging their daily routines — a movement known as the “quantified self.” With increased wearable options, more consumers are tracking their own activity and the wearable tech market is experiencing unprecedented growth.

While home telematics sensors monitor houses and life or health insurance wearables help boost wellness, auto telematics will improve driver safety and prevent road fatalities, collecting data that will be critical in the shift toward autonomous vehicles. Mobile apps that measure driving skills and offer improvement tips may become more popular as additional carriers offer new UBI programs, safe driving discounts and rewards.

The future’s smart cars will be able to communicate with each other remotely to avoid collisions and they will be able to support additional technologies, such as mobile apps. Such ease and convenience may entice new users to try UBI or telematics devices. And as a result, insurers will be able to more accurately price drivers based on their real-time risk.

This technology offers drivers myriad incentives, both personal and monetary, for safer driving. Drivers will want to improve their skills for a lower premium and, of course, for their own safety on the roads. Considering that insurers are forced to raise rates in response to distracted driving behavior, the opportunity to work with drivers to improve their actions behind the wheel will only help reduce overall costs for auto insurers. This will create the feedback cycle through which insurers can offer competitive rates to those who drive safely.

Consumers will also be able to leverage this opportunity for increased control over their personal information. With so many new forms of data measurement, consumers will have more options to choose from in terms of how they want to track their data. Instead of going directly to an insurer’s product, some drivers may want to measure their skills on their own before deciding to submit their driving information to their insurer.

Where Does Blockchain Technology Fit?

Whether they are used as part of peer-to-peer insurance or not, smart contracts built on top of a blockchain offer several benefits: they enable the automation of claims handling, they are a reliable and transparent payout mechanism for the customer and they can be used to enforce contract-specific rules.

For example, in the case of a car accident, a smart contract can ensure that the claim is only paid out if the car is repaired in a garage preferred and predefined by the insurer. Although such programs could also be implemented without blockchains, a blockchain-based smart contract provides unique benefits. Not only does it deliver an increased degree of transparency and credibility for customers due to decentralization as well as automation of reconciliation and the verification of transactions, but it also provides substantial network effects, either in the case of peer-to-peer insurance or when several parties are using it that would not be able or willing to do this with a centralized platform.

"By allowing the vehicle’s sensors to collect driving data and store it in a blockchain,” explained Kenji Fuhii, executive vice president of Toyota Insurance Management Solutions USA, “vehicle owners may be eligible to further lower their insurance costs by giving their insurance companies increased transparency to reduce fraud plus granting them access to driving data to measure safe driving habits."

For those in the blockchain space, the automotive industry is seen as a natural fit for the technology.

“We found automotive, as much as automotive found us,” said Winkelspecht. “The idea fits within the broader narrative of opportunities for blockchains in the insurance sector and a conversation that one has been involved in before regarding health insurance.”

The UBI market could be worth $123 billion by 2023 and its consumer base could grow from 15 million to 142 million over the same timeframe, according to Allied Market Research, making this moonshot well worth the time and effort.

The road to the autonomous vehicle and the new mobility ecosystem starts with these critical stakeholders.

The “Driving the Future of Blockchains” series is presented by Gem, a sponsor of Distributed.com. Read a preview of the series, part one, part two and part three.

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