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USAA investment arm leads $24 million funding for connected car startup Automatic

June 25, 2015, 11:30 AM UTC
Courtesy of Automatic

Automatic, a startup that makes a device that shares engine and diagnostic data from your car, has raised $24 million. An investment subsidiary of USAA, CDK Global, and Comcast Ventures joined existing investors Y Combinator, RPM Ventures, Anthemis Group and Amicus Capital in the round.

The $99 device from Automatic plugs into a car’s on-board diagnostics port and transfers detailed data about the car to your smartphone. Its current device connects to the phone using Bluetooth and shares data over the phone’s connection, but a planned next generation product will include cellular connectivity, which gives it similar features to its primary competitor in this market—Zubie.

Adding cellular connectivity also makes the Automatic product more attractive for enterprise use, where having an always on and tamper-proof connection is important. That should help Automatic as it courts companies like San Antonio-based insurance provider USAA, which counts its investment subsidiary as the lead in this round of financing.

USAA is testing how it can use connected devices, including Automatic’s, to change how it serves its members. Jon-Michael Kowall, assistant vice president of innovation for USAA’s property and casualty insurance business, didn’t get too specific about how the insurance firm might use Automatic. He pointed out that because the device has access to detailed data about the status of the car, it has unique capabilities that smartphones can’t offer. For example, it can tell you when your car battery is about to die, as well as provide definitive data when a car accident happens.

In the latter case that information can be used to call for help, but it also can start a claims process earlier for insured drivers. Kowall says that today USAA must wait to hear from customers and then it can mobilize to help them, but with something like Automatic the company can be more proactive. This is a common thread in conversations with insurance industry executives when discussing connected devices.

While most consumers are thinking about insurance firms using such data to raise their premiums or offer real-time pricing, for the most part insurance companies are being cautious about how they embrace connectivity. Instead they are focused on the service side of the equation. Kowall points out that right now, the privacy challenges as well as the potential for fraud, mean that USAA will be careful when it comes to figuring out how to use Automatic.

“Our members will always own their own data,” Kowall says. “And we want to do something that our members will knowingly want to participate in.”

A good example of how one of these use cases might be structured comes from the newly announced deal between Nest and American Family insurance, where AmFam provides a free Nest Protect smoke detector to policyholders and gets a monthly notification that the smoke detector is online and working. If customers share that data monthly they get a 5% discount on their premium.

Whether or not USAA would offer discounts or would just offer more proactive services is unclear. Both employees and some customers are currently involved in the tests on how it might use the technology. As for when we might see Automatic used by USAA, Kowall said, “I would say it would be sooner rather than later.”

For Automatic, which has now raised a total of $32 million, the funding also brought in a partner in the form of CDK Global, which provides technology support for 27,000 car dealerships worldwide. It will also work with Automatic to “improve the sales and service experience for millions of car owners.”

While the car is already connected by virtue of the built-in technology from the dealer and with the smartphones that users bring into the car, Automatic’s bet is that there’s still room for a separate device to pull data for the user as well. At $100 for consumers, it always seemed a hard sell, but if Automatic can use its deep access to car data to score partnerships with big-name companies that also have a vested interest in the car, it may have found both a market for its data and a group willing to pay for the hardware.