Since a few years we are dealing with some game changers in the insurance industry. They will drastically change the insurance landscape.
The current and upcoming changes are mainly technology-driven. Car (insurance) is as usual taking the lead in many cases.
Much of the content in my Blog will refer to those game changing topics below as they have my special interest for a long time.
- Automotive Technology
- Autonomous Vehicles
- Big Data
- Blockchain Technology
- Claims Management
- Connected Cars
- Connected Homes
- Customer eXperience
- Digital Advisor
- Insurance Business
- Road Safety And Vehicle Safety
- Sharing Economy
- Smart Living
- Year 2020 And 2050
- Zero Claims
Advanced Driver Assistance Systems (ADAS) are systems developed to automate, adapt or enhance vehicle systems for safety and better driving. It started in the 70’s with the development of an Anti-lock Brake System (ABS) to assist the driver in in low-traction situations when wheels are skidding (means no braking and no steering). Modern cars have a comprehensive suite of advanced driver assistance systems taking over control of the vehicle in specific situations. Currently we identify over 30 of those systems. They may provide adaptive cruise control, automate braking, incorporate GPS/ traffic warnings, connect to smartphones, automate lighting, show what is in blind spots and keep the vehicle in the correct lane. In time those systems will be enhanced and get smarter. Ultimately the vehicle can drive without any assistance of the driver. Apart from this, collisions will occur less and less on the roadmap to Vision Zero.
Aggregators are also known as comparison portals. With Confused (Admiral UK) being the first in 2002. The consumer enters the relevant data for an insurance product once. Those data are sent out to various providers returning their quotes. Those quotes are offered to the customer in a ranking order. The customer can make up his/her mind, make a choice and proceed.
The availability of masses of data is one thing; to distill valuable information out of those is something else. It is about the collection AND meaningful interpretation of the right data. While the insurance industry has always been data-centric, the type of data insurers focus on to achieve higher levels of e.g. pricing sophistication has shifted from simple, independent historical and demographic data elements to dynamic, contingent data from all kinds of sensors and other new sources. The discovery, communication and visualization of meaningful patterns in data is called Analytics. It is a multi-dimensional discipline with extensive use of mathematics and statistics, computer programming, descriptive techniques and predictive models to gain valuable knowledge from data. So analytics is not so much concerned with individual data-analyses or the analysis steps, but more with the entire methodology.
About Autonomous Vehicles
An autonomous vehicle, also known as a driverless vehicle, self-driving vehicle and robotic vehicle, is capable of fulfilling the main transportation capabilities of a traditional vehicle. As an autonomous vehicle, it is capable of sensing its environment and navigating without human input. There are 2 flows:
- The evolution of the existing cars via perfecting ADAS
- New vehicle concepts from scratch, developed to be autonomous (revolution)
One does not exclude the other. Existing car makers are mainly in camp 1 and new players in camp 2 (Google, Apple, NASA etc.). Meanwhile we do have a standard with 6 levels of Automated Driving (SAE J3016 ) from “No automation” to “Full automation”. Semi-autonomous cars are in the showroom as of now (2015). To get to “full” is expected to take 5-10 years. But still with restrictions in certain areas/regions and not yet in connection with all other vehicles and the infrastructures (V2X). Here predictions go up to 2035. However what will be achieved in the coming decade (2015-2025) will already have a huge impact on our socio-economic environment. Besides many other industries the insurance industry will be touched heavily in many different ways.
About Big Data
This is an encompassing term for any collection of data (sets) that is getting so large and complex that it is hardly possible to analyze using traditional data applications. The challenges include capture, curation, storage, search, sharing, transfer, analysis and visualization.
About Blockchain Technology
The “Blockchain” was introduced in 2009 by publishing the open-source cryptocurrency protocol. Better known in relation to the Bitcoin, the decentralized virtual currency, without so called Trusted Third Parties and Regulation. The initial excitement about bitcoin is over. It’s probably now on the long road to mainstream adoption. The technology behind it however is truly fascinating. It is known as the ‘blockchain’. It represents a sort of super database with distributed data, a tamperproof data structure and a shared public ledger open to everybody. All possible transactions are confirmed by the network. Shared single source of truth We know that – thanks to bitcoin – you can send money from one person to another without the need for banks. But now developers are exploring other areas of use. They are already finding new ways to communicate and socially network without third-party providers. To draft and enforce contracts without the need for notaries and lawyers, known as “Smart Contracts”. To issue and trade shares without the need for traditional stock exchanges and financiers. Other fields are e.g. Identity/Authentication and Insurance.
About Claims Management
In the end insurance is about claims. Not so sexy, mostly put in the background with low investment priority. However the insurer who is dealing well with claims and claims costs is best prepared for competition. And there is a lot to gain. From sophisticated integrated online first notification of loss (FNOL), via automated reserving and online claims tracking (including guest domains for third parties) up to automated settlement in 80% of all cases. Where claims tracking ends automatically with a customer-survey at closure to evaluate and to learn. On top there is a clear win-win in outsourcing to specialized partner networks. Damages are not sorted out by the insurer but by professionals in the field. The insurer (risk carrier) should only take care of the financial consequences and offer relevant services. Claims Management is not about the settlement of an individual claim but about being in real-time control on performance and loss ratio’s. Implementing UBI with back-end claims means coming full circle. Customer satisfaction on claims handling is pretty much a good driver for customer retention. And customer retention is the big thing these days.
About Connected Cars
Our beloved car is also a rewarding development object in this context. Moving from traditional mechanical vehicles via Intelligent Vehicles (IV) to Autonomous Vehicles (AV). Modern cars are already quite “intelligent” with around 100 micro-controllers spread over the car running over 100 million lines of code. In 1986 the Society of Automotive Engineers (SAE) released the protocol for the communication between those micro-controllers and the devices in the vehicle. The so called CAN-bus (Controller Area Network). Then we got the On Board Diagnostics (OBD-I, 1988), replaced by the standardized version OBD-II (SAE, 1996). The OBD-II specification provides for a standardized hardware interface (the female 16-pin (2x8) J1962 connector) and has to be within 60 cm of the steering wheel. One of the standards used is CAN-bus. The OBD-II standard has been mandatory for all cars and light trucks sold in the United States since 1996, and the EOBD standard (European equivalent) has been mandatory for all petrol vehicles in the EU since 2001 and for diesel vehicles since 2004. The technical implementation of EOBD is essentially the same as OBD-II and using the same connector and signal protocols. OBD-II PIDs (Parameter IDs) are codes used to request data from the vehicle, used as a diagnostic tool. Combine those data with GPS (positioning) and some additional sensors (microelectromechanical systems (MEMS)) like accelerometer, gyroscope, pressure/altitude and compass. Maybe add weather conditions and 1 or more cameras. Add wireless communication (via dedicated SIM-card or smartphone via WiFi, NFC or Bluetooth) and you have an extremely comprehensive source of data for the customer/driver, fleet-owner, car manufacturer or car insurer. Those required add-ons for Telematics can be factory-fitted (OEM) or retro-fitted (wired-device or OBD-dongle/plug). Interesting is that the smartphone has all the required sensors (MEMS), GPS, camera, wireless communication etc.
Although mobile MEMS are (still) less accurate than those in a vehicle there will be some trade-offs to consider. On top we will have Android Auto and CarPlay (and a few others like OnStar (GM), R-Link (Renault-Nissan) and MirrorLink). Android Auto is a Telematics standard developed by Google to allow mobile devices running the Android operating system (version Lollipop (5.0) and later) to be operated in automobiles through the dashboard’s head unit. Android Auto was announced on June 25, 2014, at Google I/O 2014. CarPlay (previously announced as iOS in the Car) is a Telematics standard developed by Apple Inc. to allow devices running the iOS operating system to function with built-in display units of automobile dashboards. CarPlay is available for all iPhones that use the Lightning connector and operate iOS 7.1 or later. Launched to the public on March 3, 2014, at the Geneva Motor Show. Apple released iOS 8.3 as a beta for developers in March 2015. The new beta offers Wireless CarPlay support. CarPlay so far worked only via wired connection. With all this smart equipment the driver can communicate with his/her car and vice versa. Next is communication of the vehicle with other vehicles (V2V) and with the infrastructure (V2I), both combined in V2X with a focus on safety and a roadmap to assisted or autonomous driving. Open Automotive Alliance (OAA) is a global partnership of leading automakers and technology companies that share a vision for making technology in the car safer, more seamless and more intuitive for everyone. The members are committed to collaborating around a common platform to make this vision a reality. This open development model and common platform will allow automakers to more easily bring cutting-edge technology to their drivers, and create new opportunities for developers to deliver powerful experiences for drivers and passengers in a safe and scalable way. The Open Automotive Alliance embraced Google’s Android (Open Source) at the beginning of 2014 and with joined forces they are “shifting into the next gear” to make the Android-connected-car a reality in 2014.
About Customer eXperience
With the modern abbreviation CX we slowly start to express that it’s all about the customer. Customer Centricity, Customer Focus are the Buzz-words today and hopefully forever.
The streams of data that are generated for various purposes are growing exponentially and this is an irreversible process. Those data are getting available for extracting valuable information and become more and more critical to competitive market advantage, traditional models for collecting information will become inadequate. The enormous amount of available data (sets) created a new phenomenon: Big Data
About Digital Advisor
The Digital Advisor (also Robo-Advisor) is a tool that can be used by insurance professionals to support their advise to the customer, but also by the customer/consumer themselves. In 1999 Ineas was the first one to introduce Primes® (Personal Risk Management Expert System). Being the first online insurance company Ineas reasoned that self-control for the customer would require sufficient tooling to enable such. In 2000 after the Nasdaq bubble-burst Ineas had to focus and Primes® moved to the background. To revive in 2013 in a new mobile concept called MIK (My Insurance Kit). In 2015 the concept of Digital Advisor suddenly starts to hype. With initiatives in the US, UK, Germany and Switzerland.
The Hella group has released details of a new system called the Intelligent Damage Detection System that is capable of detecting scratches and dents as they happen. Depending on the specification, anything from two to 12 sensors are positioned through a car’s body panels. A central control panel is able to detect a pressure being applied to the panel and then decide whether it is rain or something far less innocuous like a scratch. Using the control module and information technology backend, the top-of-the-range setup can detect both minor and major damages, anything from parking scuffs to hidden chassis problems to a glass breakage or stone stroke. If the IDDS is wired into the car’s GPS or a telematics system like OnStar, it can record the details of when the damage happened, and if plugged into a car’s numerous cameras it might be able to snap a picture of the offender.
Road Safety And Vehicle Safety
About Road Safety And Vehicle Safety
Globally we are facing 1.25 million people killed in traffic accidents per year and many times that number of casualties (from light up to permanently severely disabled). Road fatalities per 100,000 population per year: European countries 3-10 and 20-30 for example in the African Region. Cause of death globally No. 8 (Source: WHO). Of course this is not acceptable and there will be a continuous endeavor from different parties to bring this down. Countries and industries are working on:
- The infrastructure for vehicles and pedestrians. Improving day by day. From simple Road Safety Markings and Roundabouts up to fully automated control systems;
- The vehicles, rapidly evolving concerning Active Safety (features helping to avoid accidents) and Passive Safety (post-crash survivability);
- Telematics, where vehicles are communicating with each other (V2V) and with the environment including the infrastructure (V2I);
- Awareness resulting in adequate law, followed by education and supervision with an effective policy (penalty and/or reward). This one is probably the hardest. Only 28 countries (covering 7% of the world population) have comprehensive law regarding the 5 most relevant risk factors (drinking, speed, helmets, seat-belts and child restraints).
Especially the technology part is at speed and will be a driving force. eCall is the EU initiative that would mandate telematics-based, automatic-emergency-call technology in all new passenger cars and light commercial vehicles in Europe. The European Commission initially aimed to implement eCall throughout the EU by October 2015. Then it was October 2017 and now it believes that eCall will be implemented by March 31, 2018 at the latest. In the meantime many cars have it already, some car manufacturers started to roll-out in 2012 with their own emergency services. In North America a similar service is available via OnStar (see above) an Russia will deploy ERA-GLONASS between 2015 and 2017. The European Parliament voted eCall mandate per 28/04/2015. The eCall in-vehicle system will have to be fitted on all new models of cars and light vans by 31 March 2018. See also the EU Press Release.
Usage-Based Insurance (UBI) is currently the umbrella term for another way of risk assessment. Where risks are still mainly calculated by proxy (in fact mostly also Usage-Based but self-reported and not Telematics-based) there are now new solutions to get much closer to the real life situation. It started at the end of the 90-s with “mile-based” car insurance, followed by PAYD (Pay-As-You-Drive), later by PHYD (Pay-How-You-Drive) and MHYD (Manage-How-You-Drive). As Telematics (M2M-technology) is the driver for this type of assessment it is often related to car insurance. However it will quickly expand to other type of insurances like Home and Health via Domotics (Home Automation), the Internet of Things (IoT) and Body-Monitoring (Health & Fitness Apps). Telematics has evolved to road-vehicle related systems but is not more than the merging of Telecommunications and Informatics. Better is to speak of Vehicle Telematics. And likely all single solutions will eventually merge into one risk profile per person or household (“connected lifestyle”) that gives better predictive information about possible claims. Note: Obviously a lot of focus is on Marketing, Underwriting & Pricing but in the end the opportunities in Claims will really make the difference.
Year 2020 And 2050
About Year 2020 And 2050
Well known parts of Strategic Planning are the Mission and Vision Statements. Capturing the reason for being and the values of the organization. Where the Mission Statement is focusing on the Present (what is the company doing) and the Vision Statement on the Future (what does the company want to be (part of) or become). Normally a Vision goes maybe 5-10 years ahead. In a business environment that is evolving faster and faster it is getting more and more important to have the Vision clear and up-to-date. Imagine your (company’s) Vision says it wants to be part of a world that is maybe not existing anymore or rapidly changing in another direction…We all know the examples of leading companies that misjudged or neglected their (near) future. So having an eye on what’s happening and brainstorm about 2020 or so gets more relevant than ever. And also dare to go beyond that and do some estimation on how the/your world could look like 20-30 years from now. It can only help to support and improve your Mission and sharpen your Vision.
About Zero Claims
This title is perhaps somewhat provocative but that helps to shake up. Because all the effort to improve Road Safety and Vehicle Safety is simply adding up to less claims and less severe claims. Sweden’s long-term road safety goal is that there should be no fatalities or serious injuries in road traffic. This goal was approved by Swedish Parliament in 1997 and is based on the “Vision Zero” program. And it’s working. Although not that impressive but despite a steady increase of traffic they managed to reduce fatalities by around 50% in 15 years. They also managed to export the concept to a number of other countries. Also a car manufacturer like Volvo shares this Vision Zero with a target on 2020 (no fatalities anymore by or in a Volvo). Apart from these type of initiatives we see (I’m speaking for the Western European Region) that the claims frequency goes down as well as the average claims amount. For the past decade this seems to be a rather consistent trend (apart from some disruptions caused by heavy winters, hail storms etc.). The downturn can only go faster because technology seems to be in the driving seat. Personally I believe that the total claims cost over time could reduce by about 80%. These developments (together with UBI, Aggregators and Consumer Power) are slowly killing the existing business models of car insurance.