Continuity and Spontaneity

In continuation of the previous post Breaks & Continuity here we will look through the lens of Auto Insurance to find common principles for establishing continuity within the auto insurance space.

Auto insurance is a $200 billion market and Auto industry is a $2 trillion market. Does that make insurance given 10% weightage & importance in all discussions of auto industry?

TL; DR: No. Why? Because insurance is boring.

Auto insurers are themselves though excited about Telematics, worried about moral hazard & unsure of profitability. Add a pinch of regulatory affairs and a dash of fresh license holding adults; the martini is ready. A BCG-Morgan Stanley report posits and models two scenarios in auto insurance 2040 : low disruption and high disruption which will make auto insurance premiums decrease to 40% or 80% of 2015 GWP respectively.

We can a get the drift of changes in auto industry and its implications up to Netflix from the beautiful piece written by Ben Evans: Cars and second order consequences. There is no mention of any changes to auto insurance industry though; as expected.

There are two foundational technology changes rolling through the car industry at the moment; electric and autonomy.

Experts shall have us believe that " It’s easy to predict a future where all of these trends coalesce: electrically-powered self-driving cars, summoned from our smartphones, take us where we need to go", but provide a caution that "Instead, the change is gradual. Netflix here, a bit of YouTube there. Or, in the case of cars, first hybrids and assisted parking, later electric vehicles that look and operate like normal cars, and the ability to take your hands off the wheel on the highway." and summarize that

"my money is on those that own the customers and have the right business models in place."

We can infer from these amazing insights that the auto insurance industry will need to pivot from a different angle all together to be able to provide an insurance cover in future. The changes mentioned below might seem implausible today but some avant-garde organization will take up the challenge of insuring Google's/Uber's first self-driving cars and will establish early lead in the profitable market.

• The people who buy cars will change from individuals to corporations like Uber and Lyft. How will corporations of equal or bigger book negotiate auto pricing and also insurance pricing is not open to much speculation. They might decide to bear the risk themselves (like in health) or they might directly cede the risk to a global reinsurer and eat the local carrier for lunch.
• The companies that make car will change from Ford & Toyota to Tesla (higher output) , Google and Apple (each has a project in works with billions of dollar invested). They are easily poised to offer a self-managed risk plan due to their size (capital reserves requirements are comparable to Capex for an Auto factory) or they may also cede to a global reinsurer directly to save 10% in fees.
• The people who drive cars will change either to an algorithm or a silent- Autonomous Level 3, 4 copilot. The algorithm will need more of liability insurance like an E&O and not an accidental hospitalization rider. The future cars will be much safer, the accidents will be fewer but the mistakes will be costlier, pile ups bigger. The liability of a company whose autonomous vehicle hits a pedestrian will run into several millions and a class action into billions. The auto insurance will no longer be same.
• The people who sell insurance will change from brokers and agents to B2B sales force owned by the insurance company and the sales process will start on production line and never end like an IT consultancy engagement. The model will change from B2C to B2B or B2B2C leaving little room for brokers & agents ill-equipped to handle national fleets.
• How people pay and how much they pay will change to a utility function. This will be a bigger problem for old legacy system of insurers unable to sync real time data and prices. Metromile working with The Floow using real time data & billing will deliver an experience of continuity across fleet operators and car owners.

It is implicit in above discussion that insurers who make insurance and how they sell it have to change.

The way Mobile is Eating the World, anytime soon an aggregator/ disruptor/incumbent will become dominant distributor of modular auto insurance contracts through owing the customer relationship and customer experience completely & digitally. Such a monopoly provider will reap all the profits as per Aggregation Theory and will limit the role of other insurance companies to a supplier.

Mobility will long remain an important personal feature of our lives even as EVs, Uber, Mass Rapid Transit, Boring or project Titan take the place of old internal combustion engine powered vehicles. Mobility for sake of going to the beach on summer afternoon, romantic evening long-drives or great cross-country holidays will need a car that has meanings and memories associated with it. A high performance, high throttle, roaring engine shall need a perfect simple cover but the coverage needed will be continuous.

Such changes are happening across the spectrum of insurance from health to home to mobility to liability. The SMAC platform (Social, Local, Analytic & Cloud) is enabling new models of creation, sharing and delivery across industries including insurance. The process of change is gradual but can catch momentum suddenly as with all things tech. The need for continuity is firmly established. The delivery of a continuous insurance benefit through a continuous customer experience will make incumbents disruptors. The scale at which the change has to be executed needs a determined global reinsurer.

References and Gratitude:

This article draws heavily from work and blogs of Ben Evans, Ben Thompson & Horace Dideu amongst many other contributors. I highly recommend their work to everybody interested in making sense of our world. I highly thank them to make their work and insights freely available.

1. Motor Insurance 2.0 - A report by BCG & Morgan Stanley
2. The Entrant’s Guide to The Automobile Industry - Horace Dideu -Asymco.com
3. Cars and second order consequences - Ben Evans - az16.com
4. CARS AND THE FUTURE - Ben Thompson - Stratechery.com
5. How Tesla Will Change The World - Tim Urban - Waitbutwhy.com
6. SAE’s 6 Levels of Self-Driving Cars - Stephen Mraz - Machinedesign.com