Auto Insurance: Disruptive technology brings changes in the sector
The automotive insurance industry is being disrupted continuously by technology. The physical sales-oriented industry has fast-tracked to digital-only channels and now, with the introduction of Internet of Things, Artificial Intelligence and Blockchain has completely shaken up th sector while disrupting the underlying business model itself. While all may seem to be well within the industry, large insurers are struggling with challenges primarily in how to price risk; how to decrease claim exposure; and how to fight unconventional competition.
Pricing risk
Insurers have priced risk based on the law of masses. This has worked at times and not so well at other times, but insurance companies did not have a way to look at the customer beyond their age, number of years behind the wheel, and location of car and driver. Now, by installing a simple telematics device in the car, insurers are able to collect and analyse data about driver behaviour and habits, vehicle performance, predictive telematics, and a whole lot more.
This data, along with new information on customer /car relationships has helped insurance companies to hyper-personalise and contextualise risk protection for individuals, rather than a segment. Europe
and the US, being early adopters in usage-based insurance (UBI), were able to build on these business insights to achieve greater value, while countries lagging in its adoption, such as in Asia, including India, just recently initiated flexibility in product design so as to offer individual insurance products to customers. This under-exploited market remains open to potentially enormous growth.
Telematics definitely is an incremental step towards better customer / product alignment by providing atomic insights about both driver and car. Some insurers and new entrants have leapfrogged in translating customers’ digital footprints before and after driving to their preferences and behaviour via virtual channels.
Decreasing claims exposure
To reduce claim settlement time, automotive insurance customers now are empowered to self-settle the claims by documenting the damage and filing for claims through smart devices. Insurers are now focusing on being able to prevent claim, rather than processing it. As we move towards mass adoption of connected car ecosystem, including fully or semi-autono-mous driving, it raises critical questions on insurers’ ability to define and assign liability.
Unconventional competition
Google and Amazon are quickly building an insurance portfolio. Both companies are working on building technology solutions that will provide simplified, high-quality, transparent, and personalised vehicle insurance at a reasonable cost. These giants definitely have the technological edge to outpace existing insurance power houses.
Start-ups, such as Jointly or Inspool in P2P insurance and Snapsheet or Guild for claims processing, are using AI-based, real-time risk profiling and disrupting the underlying insurance business processes from underwriting to claims. In fact, these and other insurtech start-ups are redefining the new way of pricing risk and processing claims for the insured.
It is evident that for large insurers it may not be possible to out-invest or out-innovate this competition. Therefore, rather than building these proprietary disruptive systems on their own, insurers need to look for innovative ways to partner with these tech giants or incorporate the new entrants into their business strategy for inorganic growth.