By Paul Ridge, Banking & Insurance Specialist, SAS UK & Ireland
Disruptor, innovator, challenger. These are all words associated with companies like Netflix, Airbnb and Uber. They’ve succeeded in changing established industries and business models, largely supported by technology. Smartphones and related mobile innovations have been pivotal in changing the way consumers access services and are altering their demands from brands for added-value.
The insurance industry is not immune to technology’s sweeping changes. As an industry, it’s always been there to cover the risks we face in our daily lives – driving our cars up and down the M1 or starting a business with the adequate cover. Yet we’re seeing those risks slowly start to change as we start to change the way we live our lives.
Technology is evolving industries like motoring. With the introduction of self-driving technology, we’re facing a future of fully autonomous vehicles. The pace of adoption is widely debated, but for an insurer, this could mean the risks it used to cover begin to change. However, a new range of risks, not previously at the forefront of car insurance, are beginning to appear. For example, smart cars may look after drivers more than traditional vehicles used to but will also make decisions that could increase public liability risk – for example, where they lose control and cause injury or damage to a third party in the act of protecting the occupants. As cars become more sophisticated, the cost of repairs will alter, with more delicate sensors and bodywork at the perimeter of the vehicle where most damage occurs. The value of insurance will change as that evolves.
We are already starting to see this change take hold. Tesla, the most successful electric car manufacturer in the world, is rapidly exploring self-driving vehicles. Tesla’s CEO, Elon Musk, has been vocal in saying the insurance industry isn’t fairly recognising their drivers and the risks they present, based on the new technology they are building into their cars. Their argument to insurance companies is that if you’re going to price Tesla drivers based on traditional rating models then we’ll have to price them ourselves. This is going to have repercussions within the incumbent market. In the interim, alliances are building across the industry – in the UK Tesla has partnered with Direct Line, meaning it can refer customers directly to the insurer for appropriate cover. Tesla and other manufacturers are now waking up to the value of the data and real-time insight that connected cars can give them. So, unless insurers carefully consider these partnership opportunities, they’ll get left behind.
Alongside this innovation, there are questions now being asked of the data points and analytical techniques traditionally used to price car insurance – are they fit for purpose? The factors insurers typically price on include your age, the number of miles you drive a year, what car you have, where you live and what you do for a living. Emerging data sets at the scale generated by connected cars and other connected sensors or devices challenge the traditional approaches. What value can machine learning techniques bring to pricing on streaming data sources? And with all these additional sensors and new technology added to vehicles, do accidents that typically result in low value claim costs now change??
New technology, like that from the recently acquired Mobileye, can help customers’ vehicles stay in lane and brake in an emergency. Technologies like Mobileye’s can also collect information from installed cameras to continuously update maps that self-driving cars will use. There is a torrent of potential data sources being streamed from technologies like this and if insurers are willing to change their models, they can benefit from the insights this data can provide.
Telematics is another area that is going to evolve quickly. Insurance providers are already using this technology to measure how well people are driving, how often they drive and what time they drive. As mentioned before, car manufacturers are also starting to recognise the value of the data that comes out of a vehicle, especially as cars become more connected. This data and insight can help inform predictive maintenance and develop bespoke service packages suited to individual cars and driver’s needs.
We are seeing a change take hold across the industry as more tech-driven businesses start to recognise the opportunity this ever more connected world offers. The big incumbent insurance players can find it hard to adapt fast enough to exploit these changing customer and vehicle dynamics. Insurance companies should be asking themselves: how can I use technology to provide a better customer experience? Whether it’s through in-house innovation or partnerships with external InsurTech innovators, success almost always comes from an ability to exploit data through analytics. Analytics has the power to help incumbent car insurance companies – many of which are established and trusted brands – remain relevant to consumers, the way we live our lives today and protecting us against the new and emerging risks we face.