Even if it never issues a policy, Google Inc. (GOOG or GOOGL) could profoundly change the auto insurance business for the better. In particular, the technology behind Google’s legendary self-driving cars could greatly reduce auto premiums for many drivers.
Google could disrupt and transform the auto insurance business because its specialty is collecting and organizing information. Google totally transformed advertising by giving advertisers a means of seeing exactly who was looking at their advertisements. Advertising, like insurance, is an information-driven industry that was hampered by a serious deficit of information.
How Google Disrupts Industries
Before Google, advertising was a complete hit or miss. You bought an ad and crossed your fingers hoping that somebody would see it and buy your products. Many advertisers had no way of knowing if their efforts were attracting customers or if anybody was seeing them at all.
Now tools like Google Ad Words and its numerous clones let ad buyers monitor and track the number of people who see their messages. Some of the tools even let advertisers see if the person actually goes to their website and looks at their products. That makes advertising both cheaper and more readily accessible to almost everybody.
Google developed those tools by creating a search engine that was really a data collection platform. The data it collected through the search engine was what enabled Google to transform and disrupt advertising and many other businesses, including telephone directories.
Now Google has another data collection platform in the form of its self-driving car technology. That will allow it to gather detailed real-time information about driving, such as trip times and distances. That data will allow Google to disrupt auto insurance in much the same way it disrupted advertising.
How Google Could Disrupt Auto Insurance
Today’s auto insurers are like advertisers were 10 or 15 years ago. They have a very serious deficit of the information that hinders their business. Basically, insurers have no good means of tracking the actual driving habits of policyholders. All they really have is guesswork based on very limited data.
Insurers can only set rates for broad groups of people, such as men or persons at a particular job, not for individuals. That, of course, punishes good drivers and rewards bad ones.
Now what would happen if Google was able to perform the kind of pinpoint analysis of driving habits that it does for advertising? Insurers would have a far clearer and more accurate picture of driving habits. They would be able to tailor policies for specific individuals rather than groups.
For example, a 25-year-old man with really safe driving habits could get a much lower rate even if he falls into other categories that would normally raise his rates. A person with a good driving record, but poor credit could also get a lower premium.
Some auto insurers are already trying to do this by attaching telemetric devices to cars that monitor driving habits. That hasn’t worked out too well because many drivers resent being tracked and fear it will infringe on their freedom.
Self-Driving Car or Data Collection Platform
Google may have another answer in all the data it is collecting in its self-driving car experiments. As I noted above, the self-driving car is really a data collection platform. The search engine behemoth has collected a great deal of data about driving habits, and it might soon be in position to create algorithms that identify or predict driving habits based on history or other data.
For example, Google could compare the number of tickets a driver has with the average for his age group or economic level. A person with a below average number of tickets could get a lower insurance rate.
It could also factor in such variables as the amount of traffic, the number of accidents in an area, or the route a person drives to work every day. A person who lives in an area with a high accident rate, but chooses safe routes to drive might get a break.
One interesting possibility is that Google could use Android devices installed in vehicles to gather information on driving habits. Those might become yet another data collection platform for Google to exploit. Google has launched an Open Automotive Alliance designed to promote the use of its Android operating system in cars.
Another way Google could lower insurance rates is to create customized quotes that could be sent directly to customers. If Google’s advertising and automotive functions were combined, it might create a feature that sends customized quotes to persons whose driving habits change.
A person with really safe driving habits might receive an email mentioning lower insurance rates for example. A person that did a search for auto insurance in one area might see custom-tailored quotes pop up with their search results.
Google has already made some moves in this direction. In 2012, it purchased an insurance comparison service called Beat That Quote. It also charges $54 per click for insurance quote services, according to TechCrunch.
A click is a person who clicks on a link to get more information. Insurance quote clicks are among the most valuable because of the amount that insurers and agents are willing to pay for leads.
Google is already making $110 million in advertising revenues from three auto insurance companies: GEICO, Progressive, and State Farm alone, TechCrunch noted. The potential profits from insurance will drive Google to improve its marriage of data and insurance.
The world has changed greatly when a search engine company can develop the capability to revolutionize the auto insurance industry. One has to wonder what other changes Google will make to our transportation system with its data analysis capabilities.