Looking beyond insuring ‘normal’ auto risk

As the world is inching closer to shared and autonomous mobility day by day, a questions remain unanswered − if people stop driving and owning vehicles, what will insurers insure and will insurers become extinct?

Manjit Rana, CEO of Ingenin, a techno-consultant firm to auto insurers, believes that, in an era where the car manufacturers are becoming much more innovative, insurers need to evolve in order to stay relevant in the mobility business and building a relationship with consumers. “That’s nothing new but it’s definitely becoming more urgent than ever.”

Rana further explained how consumers have much stronger loyalty towards their automotive brands than their insurance carriers. This is because of the compelling ‘dating’ process between the automaker and consumer before making the decision on which car to purchase. There is no such process before selecting who to insure the car with.

The real innovation, however, starts after the purchase decision has been made.

“While insurers don’t really want to hear from you unless you need to make a claim, car manufactures are taking a more prevention or guardian angel type approach,” added Rana.

He gave examples of the premium carmakers that do not necessarily want (or need) the insurers involved in the claims process following an accident.

For example, BMW cars that come with an embedded SIM card let the company know immediately when one of their vehicles has been involved in an accident. The service officials, therefore, know where the car is and how serious the impact was. “In order to provide better customer experience, they could pro-actively call you via the car and ask if you are hurt and require emergency services.”

Insurers and their telematics proposition

Andy Goldby, chief product officer at The Floow explained that telematics-based offerings from insurers are seeing a lower uptake than many were expecting. “A large majority of insurers have already experimented with telematics, albeit many with v1.0 event based scores but few are yet pushing into P2P and other on-demand and shared mobility solutions.”

Goldby mentioned three facets of telematics that the insurers seem to find challenging: the business imperative, the customer proposition and the technical solution.

It’s not enough to have a good product with the best possible technology unless it can ensure that customers can see a benefit and actively want to engage with a telematics proposition. “If the customer doesn’t want the product then the insurer will always find the take-up low,” said Goldby when asked about where exactly the insurers are lagging behind.

Most carriers seem to believe that data is power and, therefore, it is worth investing in gaining access to the insights about driving behaviour that telematics enables.

“Fine grained telematics data coupled with an understanding of the customer’s lifestyle (where and when they drive and how honest they are) can enable the insurer to provide the level of service that will be required in the next few years,” Goldby added.

Ami Mintzer, a strategic advisor to the Croatian UBI start-up Amodo deemed it essential for insurers to collect as much data as possible in the fastest manner. He believes the best way to achieve this is via the smartphone-based telematics model since the hardware-based telematics does not present sufficient value, and insurers don’t find it profitable.

“With fewer product sign-ups and insufficient feedback insurers will find it hard to evidence the predictive power of the scores and hence safely optimise the combination of traditional risk factors and telematics insights to best predict the risk,” added Mintzer.

Rana also believes that the commercial model for hardware based telematics just does not work for the mass market and most insurers accept this as well. “There just isn’t the margins available to fund installing black-boxes into policy holders’ vehicles when they are only committed to being a customer for 12 months.”

Like Mintzer, Rana too sees the future of telematics to be smartphone-based. “Insurers cannot expect the smartphone to behave like a black box, instead they need to develop compelling insurance propositions that take advantage of the smartphones features and incorporate the consumer behaviour trends,” he added.

Insuring the future of mobility

Goldby predicts that the future of mobility can have significant knock-on effects on the insurance market if all the projections made on reduced vehicle ownership are to be believed. “Aside from the additional complications of insuring these risks, with the rise of automation and a smaller vehicle parc the overall premium available in the market will be significantly reduced.” he said.

Agreeing with Goldby, Rana added: “We are also likely to see a change in the way that cars are insured – for instance if the car manufacturer’s develop cars that just don’t crash surely we move towards more of a product liability cover than consumers purchasing auto insurance as a whole.”

When that happens insurers might not even require call centres and other consumer-facing outlets to process claims, as there won’t be many to process. But that does not mean the auto insurers will become extinct. Their world is definitely going to change and the change will be dramatic.

“The real question is whether they can evolve into providing services that are more relevant and compelling to the next generation vehicle user who may not be a driver or vehicle owner,” Rana concluded.

[Ins.Ghosh.2017.01.03]