From drivers and passengers to connected travelers 

Initiatives to ‘connect’ the traveler will revolutionize people’s experience of transportation.

The vehicle has evolved into a sophisticated computer-driven machine and is now becoming a digital hub for real-time two-way wireless data transfer. We are moving toward total connectivity between vehicles, traffic and municipal services through sensor-embedded roads and infrastructure; and between entertainment and navigation services connected with any of the myriad of mobile devices embedded in the vehicle or in the hands of the traveler. By 2020, more than 90% of cars sold will be connected.¹

Yet wireless communication, data analytics and cloud computing are relatively new technology areas for automotive players. This places them at a significant disadvantage compared to technology-centric companies such as Google and Apple, which have deep expertise, capabilities and even ownership in these technologies. These non-automotive players have also developed durable consumer relationships, especially with the important younger demographic.

Connected traveler is one of three themes that we believe will be central to the digitization of the automotive industry over the next decade. The other themes we examine are autonomous vehicles and digitizing the enterprise/ecosystem.

Infotainment

Automotive infotainment technology has seen dramatic advances in recent years. Original equipment manufacturers (OEMs) are moving away from proprietary software to open-source systems and more mobile-friendly platforms, and they are collaborating with more partners. Infotainment is also evolving into both a location-based and condition-based service where products and services come to passengers based on where they are, who they are with, what their preferences are. Location-based services can give customers end-to-end intelligent route planning across all modes of transportation, both automotive and non-automotive.

While these location- and condition-based infotainment systems are yet to be realized because of their more complex implementation requirements, subscription-based services have already arrived. However, they are mostly limited to security and safety features such as roadside assistance. Globally, the number of new cars with these features factory-installed is expected to grow from 11.5 million in 2013 to 50.8 million in 2018.⁵ While some perceive significant opportunity for growth in the subscription-based services market, opportunities for automotive players to capture growth outside of security and safety is limited because many services already come to the consumer at no charge through smartphone apps.⁶

By 2025, we predict advancements in infotainment will add $65 billion of operating profits to the overall industry value chain. OEM-driven applications and services are expected to contribute $14 billion in value creation, while we anticipate the adoption by users of mobile-based and third-party applications from outside the automotive industry to create approximately $10 billion in value. Significant usage of free applications, particularly in mass market vehicles in emerging markets, should limit the monetization potential of the service ecosystem.

Usage-based insurance

The world’s major insurers are already adapting to the expanding digital universe, modifying and customizing policies based on individual driving behaviors. Many in the industry now use telematics – onboard wireless sensors that transmit driving information. While participation is voluntary, robust incentives for good drivers, through pricing discounts and other offers, make this a compelling consumer proposition. If they keep to the posted speed, don’t accelerate quickly and limit their driving, they will be rewarded.

The spread of digital within the automotive industry will make it easier for insurers to pull vehicles into their own repair networks. This has major implications for the business models of authorized dealers and OEMs if non-OEM parts are used in the repair process. Increasingly, both dealers and OEMs are focused on the extended relationship with the customer through building robust relationships in servicing vehicles and this risks disrupting this vital relationship.

Moreover, vehicle insurance may be completely upended by the connected ecosystem. Today, crash avoidance technology in assisted driving vehicles is lowering accident rates, and by the time autonomous cars operated by artificial intelligence (AI) reach critical mass, current (see Figure 1) accident rates are likely to plummet.⁷

The insurance aspects of this transformation are not fully clear. What is clear, however, is that a liability shift will take place. Instead of driver behavior, coverage will be placed on a car’s manufacturer, the software designer, device maker, map producer, the company that made the sensors in the highway or the vehicle, the operator, the passenger or the vehicle’s owner.⁸

Insurance will need to adapt to the circumstances of driving – the specific patterns of the driver, how many passengers or customers are in the car, the purpose of the car (commercial or private), how passengers are insured, and the influence of assisted driving, where computer programs take over a number of tasks. Who is covered and for what? The answer will be based on digital data, but this raises other questions. Who owns that data and who controls it? Is it the driver, the vehicle owner, the insurance company that installed the telematics device or the manufacturer of the device?

We anticipate that incentivizing better driving behavior has the potential to generate around $380 billion in economic benefits to consumers and society from reduced premiums and reduced crashes by 2025. Over the next 10 years, more than 150,000 lives could also potentially be saved as a result of improved standards of driving.

Multimodal integration

Multimodal connected transportation seamlessly links all forms of road, rail and ferry travel, including both private and public transport, with walking and cycling. It brings together OEMs, automotive and non-automotive suppliers, and government planning, tax and regulatory entities. Full-scale multimodal integration would create significant social and environmental benefits, such as reduced pollution and congestion, and more livable urban areas, particularly from repurposing parking lots. Studies from both Harvard and New York University⁹ on upward mobility found that in terms of cost and time spent by individuals in poorer communities, transportation can be the single largest factor in escaping poverty. An integrated multimodal network would lower costs for everyone while greatly expanding access to transportation.

Multimodal integration is expected to roll out over a longer time horizon, as a complex set of interdependencies and partnerships need to be established before an individual can have a seamless multimodal experience on a global scale. Current small-scale pilot programs have proven the viability of the concept, but scaling this further will require new partnerships to be created along with the development of advanced APIs linking the various operating systems. Some of these advantages are only now emerging in municipalities where multimodal integration is being tested.

We estimate an aggregate benefit from this initiative of around $975 billion over the next 10 years to consumers as a result of multimodal integration. Consumers will not just save on the cost of ownership but also realize time savings in situations where they do not drive themselves. In addition, approximately $275 billion of societal impact is driven through time savings, reduced congestion, fewer crashes and lower emissions.