Auto Industry’s Hottest New Model: Selling Insurance

South Korea-based automaker Hyundai has announced plans to launch its own branded insurance carrier, joining Tesla, Honda, and GM, among others, in entering the car insurance business.

In a filing with the U.S. Patent and Trademark Office, Hyundai applied for a trademark called “Hyundai Secure+,” which it said was for “insurance services; underwriting and administration of property and casualty insurance, including automobile insurance providing coverage for property damage and third-party liabilities.”

The filing comes on the heels of a $9 million settlement Hyundai reached with attorneys general in 34 states that complained Hyundai and Kia sold millions of vehicles without industry-standard anti-theft devices. Insurers sued the companies over those claims and restricted coverage after a rash of break-ins and thefts.

Move is more than just legally motivated

Hyundai’s motives for entering the insurance market, however, may be about more than that past settlement. Economics could also play a larger role. Insurance premiums have grown more than 40% since 2019, and companies now spend up to 20% of their premium revenue on marketing, advertising, and agents’ commissions, executives point out.

“By bringing insurance in-house, auto companies can keep the marketing and commission costs down and/or share some of that with dealerships,” Guillermo Francisco Cornejo, a former Hyundai Capital executive, told Insurify.

Furthermore, he said, traditional insurers haven’t yet factored in pricing changes driven by new technologies, such as autonomous driving capabilities in many new vehicles.

“By moving a little faster, original equipment manufacturers can help reduce insurance costs and sell more cars without taking underwriting losses,” Cornejo said. “Long story short, they get to sell more cars and keep the profits from insurance.”

Extending relationships beyond the point of sale

Others note that offering insurance, along with financing, warranties, and service plans, enables manufacturers to extend customer relationships and lock buyers into a single “ecosystem” that lasts the vehicle’s lifetime, not just through the point of sale.

“It enables them to streamline the dispute process and maintain control of the customer relationship,” said Chad Watwood, an attorney with LawBike Motorcycle Injury Lawyers in Atlanta.

Tesla was the first automaker to enter the branded insurance market in 2019, with largely data-driven, behavior-based pricing policies that used the car’s built-in technology to determine rates.

Last year, Honda joined the party, launching its own licensed insurance company. Honda Insurance Solutions integrates insurance products into the automaker’s digital Honda and Acura vehicle sales platforms and offers new options that enhance safety and convenience.

What’s next? Not everyone is starting their own insurance service

Combining the purchase, coverage, and claims processes into a one-stop shopping model may be an emerging trend, but not everyone has fully licensed their own insurance carriers. Many still partner with traditional insurers.

For example, Ford now partners with Alset Insurance Services to offer Ford Insure. The Rivian Insurance Program provides insurance policies for owners of Rivian electric vehicles, primarily underwritten by Nationwide and, in some cases, by Cincinnati Insurance Company.

Volvo Car Financial Services, a new Volvo company, is not an insurance company but rather an independent agency and digital platform that helps customers shop for insurance through its app. It also joins with established insurers to provide coverage.

And Toyota has partnered with insurers to provide coverage for customers at the time of purchase.

All these automakers claim they designed the move into insurance to improve customer convenience and lower insurance costs by using telematics, driver behavior, and vehicle repairability to determine premiums rather than relying on traditional actuarial models.

But not everyone embraces the notion of auto manufacturers getting involved in insurance. Some see it as adding another layer of complexity to an already confusing and challenging product.

“It’s going to trigger a significant shift in the personal auto insurance market, and has the potential to complicate things,” said Ben Galbreath, partner and insurance agent with Wallace & Turner Insurance in Springfield, Ohio. “As more households end up with multiple vehicles insured through different carriers, policies will become more fragmented and complex. That creates challenges not just for consumers, but for traditional carriers and agencies, particularly when it comes to offering umbrella coverage.”

Umbrella policies, Galbreath told Insurify, typically require underlying auto coverage to meet specific criteria, and automaker-issued policies may not always qualify.

Reinsurers — companies that provide insurance for other insurance companies — may also turn a critical eye toward the trend, he said.

“Reinsurance companies closely evaluate many factors of primary insurers before allowing umbrella coverage to sit over them,” he said. “As automakers enter the space, reinsurers will need to assess a range of new risk factors, which could further complicate how and when umbrella coverage is offered across different providers.”

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