Getting urban China to work properly is vital to the country’s future. However, rapid urbanisation has left China’s public road network and transport infrastructure overburdened;
- First, China’s road infrastructure has not kept pace with car sales. Despite government efforts to curb new car registrations, China’s roads are heaving with vehicles and the congestion and emissions they bring.
- Second, automobile accidents kill 500 people every day in China. This is double the per capita rate of developed nations and 94% of these crashes are due to human error.
- Third, by 2030, 70% of China’s population will live in cities. Urban mobility will depend on syncronised public and private transportation networks.
Although the list is daunting, autonomous vehicles and connected mobility solutions are promising to reduce the number of cars on the road by 40%, vehicle emissions by 70%, and traffic accidents by 90%. Against this backdrop, we consider what these shifts mean for insurers, and how insurers can position themselves to capitalise on this new norm.
China has a smartphone penetration rate of 94%. This, coupled with the current gridlock in many Chinese cities has given rise to several telematics initiatives. Although Pay How You Drive policies have yet to be approved by the regulator, several apps have emerged to allow drivers to better monitor their driving behaviour and perform route analysis. Some of these include
- Chelian: Tencent owned Chelian app provides real-time traffic conditions and route planning services while another Tencent telematics effort, LuBao, provides an on-board diagnostics through an OBD (on board diagnostics) device, to record driving behviour and capture vehicle performance and route data.
- Okchexian (okchexian.com): OkChexian is a Shanghai based startup that uses location data to offer traffic jam insurance and route planning across tier one cities in China. Also offering a white label telematics middleware for car insurers that can be embedded into their own native apps and channels.
- UBI001 ubi001.com (ubi001.com/): A Shenzhen based OBD provider that measures driving data and vehicle performance. UBI001 are currently co-operating with China Life, AXA, PICC and Sunshine Insurance Group.
- DiNA cpsdna.com: DiNa is a Nanjing based ‘Internet of Vehicles’ startup that has an OBD device to report vehicle condition, provide emergency alerts to drivers and location based services. Integrated with mechanics around china to provide break down assistance.
- Zebra Drive: Zebra Drive is a Hangzhou based smartphone telematics app. Without a hardware component, Zebra Drive relies solely on integrating car insurance policies into the app.
- 那狗 nicigo.com: Nicigo provides ‘advanced driver assistance’ through video enabled collision avoidance software that includes stray object warning, lane departure detection, and dangerous driving detection.
Although there are several more telematics efforts currently active in China, software is beyond the smartphone and pervading both vehicles and public transportation services, this convergence is known as ‘connected mobility’ and is increasingly important as China’s roads are heavily over capacity.
2) Connected mobility
The second wave of disruption within transport is the notion of ‘connected mobility’. Connected mobility is the use of advanced analytics across public and private transport networks to optimise traffic flows, match supply and demand, and provide route planning. In this way, and if deployed correctly, , just 15% of the current volume of vehicles will be needed, and insurers will be needed to cover new use cases and capitalize on location based offerings.
Some examples of connected mobility efforts in China include:
- AMAP: Advanced Modern Analytics Platform (AMAP) is a mapping app used used by traffic departments in over 100 Chinese cities. Although Baidu and Tencent have mature mapping offerings, AMAP’s granularity and city level support has built an analytics offering designed to integrate in a modular fashion with both public and private transportation networks. Insurers can provide location-based coverage and location-based marketing.
- Baidu/Alibaba/Tencent: A large traditional consumer facing industry will always attract the attention of internet giants. Transport is no exception. Tencent has Navinfo, a mapping traffic jam and traffic accidents information, transportation forecast. Baidu has CarLife a telematics effort, and Alibaba is partnering with car manufacturer SAIC to become “the second engine of cars, where data will be the new fuel”.
- Connected Mobility startups: Of course, the breakthrough nature of autonomous driving will also be pioneered by several startups. Companies like Nio, Thunderstruck, iMorpehus.ai and FutureMove all lay the foundation for a mobility network that can accommodate its burgeoning cities.
- Qoros Auto: Qoros Auto is a Shanghai based auto manufacturer that is placing particular emphasis on its telematics program; Qoros Qloud. Qoros has partnered with CPIC usage based insurance and safety-related services is provided in conjunction with Qoros Qloud.
Ultimately, mobility startups including telematics, mapping and assisted driving initiatives will continue to blur the line between public and private transportation in China. For insurers, the key question is how commercial coverage and new location-based offerings can offset diminishing premiums, although there are several paths for property insurers to pursue, we must first consider how the onset of fully autonomous navigation will affect consumers and insurers alike.
3) Autonomous driving
China has made self-driving cars part of its national agenda. As Beijing scrambles to draft autonomous driving laws, several initiatives are already pushing forward. BMW demonstrated automatic lane changing on a Chengdu highway in June and a prototype built by Chinese search giant Baidu recently drove 18 miles through Beijing.
Additionally, driverless transport will depend heavily on local government support. Tangshan City in north China has built the Caofeidian Automatic Driving Truck Base to test autonomous commercial fleets while Wuhu, a city 200km west of Shanghai, is bidding to become the first city in the world to go totally driverless by 2025.
Considering this, the key question for insurers is how they can maintain their positioning and margins in the face of true autonomy. Although there are at least two use cases that will clearly require insurers to not only provide coverage for autonomous vehicles but also access the underlying driving and location data required to keep a direct relationship with consumers.
1)Non-autonomy use cases:
It’s important to remember the technology involved in autonomous driving is tricky. Free space estimation, general object detection and emergency steering all require 100% accuracy levels and even slightly adverse weather conditions can interfere with crucial readings.
Additionally, insurance will be needed for places where autonomous vehicles can’t operate. Weather conditions such as severe rainfall or snow will limit the ability of driverless sensors to function. Autonomous vehicles will also be subject to road-type limitations and restrictions. As such, the age of autonomy will arrive with a host of exclusions through which insurers will be required to not only cover outlier scenarios but also location based coverage offers.
2) Cyber security:
Security vulnerabilities from software bugs and deliberate attacks are possible in any software. It’s important to remember that cyber risks will be eliminated as autonomous vehicles mature. Toyota’s recall of 9 million vehicles in 2010 shows the degree to which technical oversights can and will happen. In another instance, Tesla admitted a breach that permitted remote access to functions including turn signals and brake pads.
New types of coverage including cyber liability coverages. Manufacturers will need coverage for the risks of cyber attacks, hacking, and breeches of data privacy.
Autonomous vehicle reliance on software may open the way for multi-tiered insurance products. For example, insurers could offer a hybrid product combining commercial liability with specific cyber security protection and personal auto insurance.
Ultimately, the threat of software failure or hacking is even more concerning considering the reality of autonomous vehicles traveling at speed and in close proximity to pedestrians.
Urban transportation is set to become more shared, electric and autonomous. It’s important to remember that the advent autonomous transportation is not a zero sum game. Although some revenue streams will likely dry up, new ones will begin flowing. New customer categories and the creation of new insurance products in addition to services to drivers, owners, and vehicles mean that insurers still have time to find their place in an autonomous world.