Micro insurance seen as a game-changer

The advent of the sharing economy and its disruptive new mobility services, such as peer-to-peer (P2P) car-sharing, is about to change not only the way we move around but also the way we insure ourselves and our vehicles. “The sharing economy has changed the customer need very deeply,” says Marijan Mumdziev, CEO at Amodo. “If the customer has a certain new need, there will be companies willing to address it.”

That new need appears to be micro-insurance, coverage for the duration of a trip, whether it is for P2P car-sharing or even the use of one’s own car. This has enormous implications for the entire auto insurance industry, Mumdziev believes.

“The whole game is about to change radically, influenced by a number of market forces,” he predicts. “All the connected cars being produced by car-manufacturers are putting them in a perfect position to launch their own insurance. So, you will see a clear differentiation between the insurance market leaders and the others, because their strategic positions are different.”

The market leaders, such as AXA, Allianz and AIG, will focus on providing coverage for carmakers, who will be offering insurance via their embedded connectivity, he says. “But the others, who have a more local or regional market presence, and do not have a global footprint, will want to position themselves on the market differently. And micro-insurance is one of the potential solutions.”

Micro-insurance was born of necessity, when the founders of pioneer P2P companies realised they had to create a new insurance product to cover their service. According to Matheus Riolfi, director, International, at Turo, his company invented micro-insurance.“There was no way you could source an insurance policy to cover peer-to-peer car-sharing. There were only full-year policies and there was no policy to make sense of the risk on the owner’s side and on the traveller’s side.” Hesays that designing a viable auto insurance product for P2P car-sharing was very difficult. “It took our founder 18 months to find an insurance company to work with.”

As it works now, every P2P car-share is covered by a Turo auto insurance policy. “That means if there is an accident, the car owners personal policy is not affected,” Riolfi explains. “The premiums won’t change, the no-claims bonus will not be affected and, on the traveller’s side, liability insurance is included in every transaction and we always sell, on the side, a loss damage waiver. We have different levels of risk [the traveller] can choose, on the physical damage side.”

The traveller’s risk profile is developed a proprietary platform, which has machine-learning capability and uses actuarial and fraud data from internal and third-party sources. Riolfi says telematics technology will be a big boost to efficiency and market growth. “We think telematics will help us and our insurers understand the risk better, both in terms of the usage of the car and in terms of trust and safety,” Riolfi says. “In the future, when connectivity is easily available to third-party providers, we see a world where the peer-to-peer model is even more convenient for car owners and travellers.  And we can take more refined decisions when it comes to risk-taking and pricing risk.”

James Hodgson, industry analyst at ABI Research, agrees. He says: “To get an accurate impression of how risky a driver is you only get from quality data taken from the kind of sensors that will be embedded in vehicles going forward, such as those related to collision avoidance and more advanced forms of driver monitoring, sensors in automatic braking systems or cameras facing the driver. Where vehicles are shared, this also helps identify users and to create a unique profile associated with them, rather than with a unique vehicle.”

Riolfi also maintains the technology will unlock the market for P2P car-sharing. “The use of telematics data will be critical to grow the industry,” he says. “It is a critical piece of data that will accelerate our business.” The reason is trust.

“One of the main barriers to (car-sharing) adoption is the psychological barrier that a car owner may have about giving control of his car to a stranger,” Riolfi says. “The moment that we have this technology, we can provide even more assurances to car owners, because data is being captured. Even if we don’t share it with the owner, we have it in our system. We know what is happening with the car. Just knowing that this data exists, will provide an extra layer of confidence.”

ABI’s James Hodgson thinks that, ultimately, the P2P car-share model will have a very limited market opportunity. “More likely, you will have fleet-based models where the mobility provider owns the vehicles which drivers then use,” he predicts. Some carmakers, such as BMW, are already offering cars as a service.

These fleets will have important implications for insurance, Hodgson says. “You need to have some means of identifying users, to know who’s operating the vehicle. You need to have some kind of profile associated with that driver – this is where UBI comes in – which stores their driving behaviour and which offers them a premium when they get in a vehicle. You offer micro-insurance, per trip, and you need an embedded, integrated, reliable in-car payment solution as well. This can be done via an app or something embedded in the head unit of the vehicle.”

Mumdziev believes that acceptance of this insurance model will eventually go well beyond the sharing economy, because the micro-insurance product will ultimately be used as a means of packaging personal auto insurance. “Because this is what really personalising the product means, so that the customer is charged only for what he uses. That would be fair and that’s how it works in most industries.”

The insurance industry is not yet aware that micro-insurance can increase insurance volumes exponentially, he notes, because they will enable insurers to reach currently untapped markets. “So, for example, many people in Central and Eastern Europe who currently do not buy comprehensive auto insurance would be very willing to go for one if they had this option, with more suitable, more personalized, more tailored packaging,” he says.

According to Mumdziev, these products are coming on the market soon. “Today, we offer this product via the smartphone.” He explains that the insurance could be made available via the technology provider’s app, or the insurer’s app, or the customer could use the provider’s app to access insurance from the provider’s insurance partner or partners. This could create a new kind of business model in which a company would have partnerships with a number of insurers, each of whom would be partners with a number of technology providers.

Hodgson sees the driving data as key to these new business models. “The data could be anonymous and be made available to a number of different insurance vendors and they could have some automated process of them begging for your custom,” he explains. “Through the head unit, you could have a number of different offers made to you, based on the data.”

This kind of service is already available, he says. Mojio, the OBD plug-in aftermarket connected-car platform, has an application where you can anonymously share your driving data, and after a while you receive various offers for insurance. “You build up data with every trip and this can be used to refine and hone the offers that are made each time you get into a shared vehicle. This is a path I can see for UBI if you go down this micro-insurance path. You’ll be using connectivity and the embedded HMI to increase competition. This is, obviously, a very large disruption.”

Mumdziev also says that this kind of product would be an industry game-changer. “None of the big insurance companies want to go into this game because they are all afraid of cannibalisation,” he maintains. “However, I can tell you that many smaller insurance companies that do not have a significant chunk of the motor insurance market are happy to jump on our platform and grow through volumes. This would significantly change their market position.”

Consumers would like a micro-insurance package because it is significantly cheaper, Mumdziev says. “This product would be more expensive per kilometre, on average, than full-year insurance, but you would simply buy a cheaper package and have significant annual savings. We estimate that you would be paying 80% less for the insurance product than you are paying now. I see this as the future of auto insurance.”

Hodgson says that there are legal questions to resolve about private micro-insurance. “It would depend on local legislation whether you’re allowed to have a vehicle sitting around for long periods effectively uninsured,” he says. “This is certainly an opportunity for efficiency but you need to provide guaranteed insight as to when the vehicle is being used, who’s using it, where it’s parked.”

In any case, he agrees that the new mobility services will force insurance companies to be far more nimble than they have been in the past. “It’s going to be a very challenging market for insurers going forward. What has been traditionally a very conservative industry now has to be very adaptive to survive and weather the storm. Even UBI players, who have always been thought of as the most innovative of insurance vendors, will have to adapt to these technologies that are transforming personal mobility.”


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