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Insuring the Future of Mobility
Auto insurers should be prepared for the new mobility ecosystem
The changing environment of mobility has already been in the spotlights for a while. The mind-set is set for change. Auto insurers should position themselves to take the driver’s seat and adapt to this changing environment, or they could lose the race. In this opinion we reflect on the Deloitte 'Closer Look' study on Insuring the Future of Mobility and put it in a Dutch context with focus on the next three to five years.
Yoeri Arnoldus - 14 February 2018
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Checking the mirrors
Insurers have historically been managing their portfolio in a relatively stable market, with relatively limited data available to identify risks. Technological advancement (i.a. Internet of Things) is creating a larger base for data that helps insurers to better service clients (e.g. prevention) and better estimate, price and control the risks, tailored to their clients.
Additionally, consumer behaviour is changing. Part of consumers is moving towards sharing economy concepts. Having a home assistant connected to the cloud servers of the selling company is also getting widely accepted by consumers since they see security or comfort benefits from this. It seems however that people start to be cautious in sharing their personal information if it is explicitly brought to their attention that their data is effectively used by others. This effect is also a fundament for the upcoming General Data Protection Regulation (GDPR) law.
Deloitte’s Global Automotive Consumer Study 2017 shows that consumers seem ready to adapt new ways of transportation as long as they seem safer and not too disruptive; with the perception of safety and disruptiveness depending on the current state of infrastructure, cars and historical background per geography. The 2018 study additionally shows that the perception of safety changes as the percentage of consumers that think self-driving cars will be safe increases significantly in 2018. Insurers have to pick the fast lane and reconsider their products and business models (also a key focus of the Dutch supervisor DNB).
Insurers are gearing up
In the Netherlands the speed at which smart mobility concepts are gaining market share is difficult to predict due to a broad range of factors, including technological, social, political and economic drivers. Insurers may therefore have some time to get their data, IT and systems landscape in order for the future. On the other hand, we see insurers (and InsurTechs) investing profoundly in innovative projects along the value chain and moving from experimental innovation labs to business implementations.
Some insurers are cooperating with or investing in Mobility as a Service (MaaS) concepts to keep better control over the risk pool in the future. Another area in the mobility field that insurance companies are investing and experimenting in is telematics solutions. Adaptation of telematics by consumers is however not at the required level. With telematics it is currently explicitly brought to the attention of consumers that the insurer is “receiving and using personal information from them” and consumers do not sufficiently seem to feel or see the benefits (yet).
Preparing for the future today
Given the long-term horizon of the prognosis for the transition speed of smart mobility, the rise of the sharing economy and current low consumer attention for telematics solutions, insurers are challenged to pick the fast lane and effectively invest in operations, product development and new business models to be ready for the future developments in mobility. Going forward we define two main dimensions along which the future state of mobility can evolve (see figure 1) and insurers should choose how to prepare strategically in the different scenarios.
Personal owned driver-driven vehicles are most common today. Insurers will try to commoditize the products and covers as much as possible for this target group (e.g. off-the-shelf insurance). Shifting to shared vehicles, the risk profile is moving from private lines to more commercial lines alike. The two main options of insurance are insuring the owner of the vehicles (fleet insurance) or a usage based insurance where the (temporary) driver is insured based on the usage of the vehicle. This latter has a need to set up a more advanced system of tracking and tracing, but has the advantage that it can also give the insurer more insight in the real risks involved and become more connected to its clients.
Self-driving cars bring most need for change to the insurers. The cars are likely to become less risky in frequency of claims, but with higher claim costs in the short run due to higher, high-tech repair costs. Moreover, risks will be based more on a combination of software and hardware than driver behaviour. A solution can be to unbundle the insurance and covers to multiple policies. Some covers can be easily unbundled (theft, windshield damage), while especially for the liability covers this is less obvious. It is expected that Original Equipment Manufacturers (OEMs) will take on their part of the liability. Insurers should explore partnering possibilities.
It can also be expected that self-driving cars retain a possibility to shift to driver-driven (like current automatic transmission has the option to shift to semi-automatic/DSG). It should thus be clear who was driving at the time of the accident (driver or car). Even less obvious is what the cause of the accident was. It might be caused by a glitch in the software, a broken sensor or an external factor. To define what occurred, it is essential that cars return a detailed and reliable report of the situation just before, during and after the incident.
First party insurance
The blurred liability for self-driving cars has brought up a discussion in the Netherlands on “first party” insurance as an alternative solution. Here it does not matter which party is liable anymore for claim handling; the claim handling and payment is done to the policyholder/insured immediately. Also from a consumer’s perspective this seems to be helpful in a faster and easier service. However, from the underwriting and risk perspective it can become harder to identify risks and risk factors in a policy, especially if the settlement process with other insurers is either not existent or inaccurate.
Insurers navigating to the Future of mobility
Insurers are already on the road to the future of mobility and are gearing up. Although consumers are not yet eager to exchange their personal data, it will only be a matter of time before they start doing it. Self-driving cars are coming and data sharing from the car will become less visible, more advance, real-time and in the end more common. Insurers might speed up this process if they could engage consumers and start showing the potential benefits in terms of prevention, safety and cost reduction.
In addition, future mobility will decrease the attritional risks, but brings more complex product structures and accompanying underwriting and claim handling challenges. Insurers should keep focus on retrieving more data invest in advanced (actuarial) analytics capabilities and explore partnerships. By driving in this direction and constantly testing, reshaping and monitoring the business and product progress, the insurers can keep control of the steering wheel and make this journey a holiday ride instead of a Dakar rally.
Future of Mobility interactive magazine
The future of mobility will impact us all. Discover how the expanding mobility ecosystem will impact your business. We combined all our insights in our Future of Mobility interactive magazine.
Future of Mobility
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