United Kingdom

Details

  • Industry: Financial Services, Insurance
  • Type: Business and industry issue
  • Date: 20/05/2013

Insurers, machines that talk and the driverless car 

the driverless car

Technology is capable of being hugely disruptive to established business models. However, insurers, as an industry, have shown themselves to be capable of innovating and harnessing the benefits of technological change.

Harnessing technological power

You only have to look at how private motor insurance distribution has moved from a largely broker-driven model in the 1980s to a more direct model in the 1990s and then to one that is now dominated by internet distribution through ‘aggregator’ websites. We are now also seeing the use of social media channels as a way of reaching customers.

 

Insurers have also been able to harness increased computing power and richer data-sets to successfully build business models and create value. These developments have helped to provide better insights into the risks of being insured for those able to take advantage of them.

 

However, I believe that the insurance sector is about to be set new technology-led challenges – and presented with new opportunities. We are on the cusp of the automotive industry realising the benefits of machine to machine (M2M) technology, a term describing the wireless connectivity of machines. Insurers need to decide how to respond to this change, and fast.

In-car telematics and the driverless car

This brave new world is of course already taking shape. Some insurers are already gathering accurate information about their customers’ driving behaviour using in-car telematic ‘black boxes’ that transmit data wirelessly back to the insurer. Not far ahead are cars which will be able to communicate with each other as well as their surrounding environment. Such technology is also what makes the driverless (autonomous) car possible.

 

So how will insurers evolve to manage the disruption caused by in-car telematics and the driverless car? I believe that, again, insurers will innovate. First, my view is that two potential futures exist regarding telematics. Their use could become the preserve of ‘good’ low-risk drivers who choose to have their driving behaviour recorded and use their driving behaviour history to secure lower premiums. This leaves only ‘bad’, higher-risk drivers, retained within a traditional motor insurance model and paying significantly higher premiums.

 

The alternative scenario which I can foresee is higher risk drivers being forced to have their driving habits tracked using in-car telematics, essentially individually tailored products, with lower risk drivers being kept in a traditional insurance model where it is viable for risk to be pooled. Insurers need to consider how to respond to both of these scenarios.

Turning to the driverless car, this could lead to traditional motor insurance becoming more closely aligned to liability insurance and sold to manufacturers rather than ‘drivers’. Additional products are also likely to evolve, from business interruption insurance to cover the impact of vehicle breakdown, to insurance to cover the risk of cyber attacks on the networks controlling driverless vehicles.

'What if' challenges

Of course, such developments raise many questions – many ‘what-ifs’. For example, is technology going to improve road safety further and will telematics actively encourage safer driving? There is evidence from other sectors to suggest that such a change could materialise. For example, a health care insurer in South Africa was able to positively influence the behaviour of its policyholders by offering a premium reduction in return for regularly taking exercise, attending a gym and having medical checks. Even buying healthy food at supermarkets was linked to cash-back rebates.

 

Another consideration is that the use of in-car ‘black box’ data could become commonplace to detect car insurance fraud such as ‘cash for crash’ staged collisions, and potentially reduce premiums as a result.

 

An additional ‘what if’ challenge may come from non-traditional competitors - this would hinge on which organisations feel best placed to take advantage of the rich data asset. For example, driving data obtained from telematics could be used by car manufacturers, (or spectrum and technology providers) to allow them to offer their own motor insurance policies - or are barriers to entry into the insurance sector, such as regulation, too high?

A collaborative future

I believe that the scale and complexity of the challenges relating to M2M technology, such as telematics and autonomous cars, lend themselves to being overcome through the creation of significant joint ventures and partnerships. The successful insurers of the future will need to work collaboratively with the likes of car manufacturers, brokers, aggregators and telco companies to realise their ambitions.

 

However, the most exciting aspect of M2M and other technological developments to the automotive and insurance industries is the potential itself. It’s no more possible to predict the scale and impact of such technology on the insurancesector and the world’s drivers than it was for internet pioneers to predict how the internet would be used today. But, regardless of the ultimate destination, the journey will be fascinating and offers opportunities to those insurers able to adapt quickly, innovate and collaborate.

What's your view?
 

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Murray Raisbeck

Murray Raisbeck

Partner

020 7311 5910

murray.raisbeck@kpmg.co.uk