The following is an opinion article written by John Phillips, managing director EMEA at Zuora. The views expressed within the article are not necessarily reflective of those of Insurance Business.
Up until the first four-wheeled petrol-driven vehicle was introduced by Frederick Bremer in the late 1800s, travel within the UK had heavily depended on traditional methods, such as horse and carriage. But this was all turned upside-down just before the turn of the century – bringing with it the first auto revolution.
Fast forward a few decades and the auto industry had reached a pivotal moment and had produced what we consider today to be the ‘modern car’. The following years brought minor changes to the industry, but eventually flat lined and the auto industry gained the reputation as traditional – an industry that would likely be forgotten when speaking of major disruption.
Today technology has taken the front seat and the auto industry has entered what many are calling the second auto revolution. From predictive technology and electric vehicles, to driverless cars and CaaS (car-as-a-service), auto-tech has evolved tenfold in recent years, bringing with it some exciting advances.
Driverless cars in the UK
In the UK, driverless cars have gone from science fiction to reality. In June this year, the government launched a new £30 million fund for British businesses looking to develop technology for driverless cars. This particular initiative, along with the “Last Mile” and “Future of mobility” call for evidence documents, highlights the government’s ambition and commitment to becoming a world leader in autonomous technology.
But it isn’t just the technology which has changed. There has been a significant shift at the consumer level, due to urbanisation and a general lack of interest in car ownership among young drivers. This has resulted in an uptick in ride-sharing services like Uber and Lyft, and subscription services such as Zip Car. And the auto giants have taken notice - Porsche, Volvo, Ford, BMW, Cadillac and Mercedes-Benz have all recently announced subscription programs that are quickly gaining traction.
With so many changes happening within the auto industry, it was only a matter of time before a trickledown effect started to occur. An example? The auto insurance sector. This branch of the industry has gone through its own evolution lately, with most insurers moving away from fixed rates and rigid actuarial tables towards dynamic pricing and personalised services.
Although forward thinking insurers like Metromile are embracing this shift by offering “pay-per-mile” insurance for low mileage drivers, the eventual move to vacate the driver’s seat once and for all will require insurers to completely rethink the way in which they assess a driver’s history to assign a premium. Smart insurers are anticipating this influx of technology into their field by partnering with market challengers to future-proof their offering.
So what does this mean for the industry, and how will this change the way that insurers work?
Next level premiums
In most cases, the price of a driver’s automotive insurance starts as a reflection of their personal driving history. But what happens once traditional ownership of a car is eradicated, and drivers solely depend on connected vehicles and/or mobility services to get around? The history that was so integral to premiums will be gone. This will have the effect of reducing premiums overall due to a lower level of individual vehicle accountability.
Insurers will start to incorporate real-time data and highly-intuitive analytics functions into their evaluation of connected vehicles. This is already being practiced by Air, an innovative real-time cloud system for car data analysis. The business, which can make any car a connected vehicle by harnessing services that protect against theft, manage fuel consumption and provide diagnostics, is working to offer car insurance on a performance-based “pay-how-you-drive” costing model, allowing consumers to purchase as a subscription. Overall, doing this will allow insurers to make up for lost accountability, and will assist them in reflecting driving behaviours as accurately as possible moving forward.
Data can unlock new potential - and this is especially true as it relates to auto insurance. By utilising vast amounts of telematics data collected through connected cars, insurers have the capacity to upsell related products and services. Think Volvo, for example. The auto giant recently released Care by Volvo, a subscription service that allows drivers to reap all the benefits of a Volvo, without owning it. Volvo uses intelligent data to create personalised services, including a comprehensive and flexible insurance policy for subscribers – all within a fixed monthly price. And it’s working - CEO Hakan Samuelsson predicts that subscriptions will account for a quarter of the company’s total sales within five years.
Intelligent data creates an atmosphere that gives insurers the unique opportunity to get to know each customer on a new level - giving them the power to more accurately identify consumer needs and habits. This heightened awareness can result in valuable and actionable outcomes, like fair pricing policies without the worry of fraudulent practices. Looking forward, insurers will even be able to move towards stricter verification processes to crack down on the emergence of forgeries, building security on both sides of the equation.
Over a hundred years since the first car was introduced into the UK, the automotive industry has gone through a multitude of changes. The introduction of new technologies, such as connected and driverless cars, has brought us into what many are considering the new automotive revolution. Coupled with the increasing affinity towards subscription-based services, these changes have given the auto insurance industry an interesting opportunity to create a less-siloed and more profitable insurance ecosystem – giving consumers much more than the traditional coverage.