For the past two weeks, I’ve been looking at how consumer demand is driving the development of the car of the future, and how automakers expect vehicles to evolve over the next 10 years. Today we’ll examine ways in which the insurance industry can position itself to ride these waves of change.
The convergence between insurance and “smart” cars is nothing new. Data on driving habits and usage collected via “black boxes” installed by insurers have been used in underwriting and pricing for years now. Usage-based insurance in Europe has had mixed success, but is especially successful in Italy, where the partnership between automotive aftermarket supplier Octo Telematics and five partner insurers has more than half a million subscribers, according to a study by the University of St. Gallen.
With this technology already in place, insurers could use data sourced from vehicles to enable a portfolio of value-added customer services, such as vehicle diagnostics, concierge services, and more—all deliverable to drivers through devices including a vehicle’s head unit, or a driver’s smartphone or tablet.
The capability of in-car purchases will create whole new revenue streams for insurers and their ecosystem partners. Equipped with information on vehicle usage, insurers could bill their customers based on the mileage driven, and partnerships with automakers will create new lines of business as information brokers.
However, these opportunities must be balanced with the market disruption they will present to traditional insurance models. For example, the rise of autonomous cars—and the trend of ridesharing–suggests a transition away from traditional vehicle ownership, which could alter insurance products and challenge everything from accident trends to questions of liability.
A number of key questions come to mind when considering the impacts and opportunities associated with autonomous vehicles:
- Will autonomous vehicles require airbags and make accidents obsolete?
- Will this disrupt insurers’ existing business models?
- In the case of driverless cars, who will be liable in case of an accident—the automaker or the technology provider?
- What role will government and regulatory bodies play in the development of these vehicles?
- How can insurers use the wealth of additional data that will become available from next-generation vehicles to optimize insurance products and premiums?
Insurers are already sounding the alarm about how the emergence of “driverless cars” will hurt their bottom lines. US-based Cincinnati Financial Corp., which generates nearly a quarter of its premiums from commercial and consumer auto policies, warned in its annual report that forecasts could be flawed because of “disruption of the insurance market caused by technology innovations such as driverless cars that could decrease consumer demand for insurance products.”
We expect new insurance models will arise as insurers adapt to these new technologies, and change how they underwrite and sell insurance products – for instance, moving away from motor insurance to product liability insurance. These could in turn lead to profound changes. For example, if liability switches from drivers to software manufacturers, it will become redundant to consider individual motorists’ driving skills.
One thing is certain: in order to thrive in the new world of the connected car, all players involved – automakers, insurers, technology providers, telematics, and more – must work collaboratively, creating an ecosystem that’s positioned to take advantage of opportunities, minimize risks, and provide customers with what they want and need.
Next week, I’ll take a look at one current example of entities are doing just that.
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