Digital Insurance at Baidu

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China’s most popular search engine, Baidu, succeeded by setting its search engine as the default home page across China’s internet cafes. Success in search has since enabled Baidu to launch a range of complimentary apps including maps, music streaming and communication tools all of which legitimized Baidu as one of China’s leading internet companies. However, unlike its counter parts at Alibaba and Tencent, both of whom are pursuing a range of O2O services and international expansion, Baidu has chosen to concentrate its R&D efforts on a single endeavor; autonomous driving.

Watch now: Video insight into the wider issues raised in this article with Swiss Re’s Yannick Even and the TDI team

The need for autonomous transportation in China cannot be understated. Car accidents kill 500 people every day and 94% of these crashes are due to human error. Additionally, as 80% of China’s population will live in cities by 2030, the concept of connected mobility will require a high degree of coordination between public and private transportation networks.

In light of these trends, Baidu has recognised that it’s not enough to invest in autonomous driving research but also to pioneer its deployment. To do this, Baidu has established the ‘Apollo’ unit and set a two pronged course for its pursuit of autonomous driving. The first is a range of driverless vehicles that Baidu manufactures in partnership with auto manufacturers for selected use cases. The second is an open source operating system that brings together hardware, software and services to allow auto manufacturers to build autonomous vehicles for China. Although these two approaches differ in size and scale, they share several goals that will significantly impact auto insurance, both of which are worth considering in turn;

1. Apollo Pilot Initiatives

Apollo Pilot is based on the premise that Baidu will not manufacture autonomous vehicles itself but will instead equip manufacturers with the hardware and software necessary to compete in the autonomous era. To accelerate this, several driverless and semi driverless vehicles have been developed for pre-defined use cases. The first is a self-driving shuttle bus developed in conjunction King Long Automotive and designed to be used in enclosed zones such as airports and industrial parks. The second is an autonomous road cleaner already in use by the Shanghai municipal authority. Other models spanning agri-machinery, semi-autonomous wheelchairs and of course driverless cars.

Bespoke Concepts such as shuttle bus, road cleaners and semi-autonomous wheelchairs are all part of the Baidu Pilot program.

Baidu’s autonomous car has been manufactured with BMW and recently drove 18 miles through Beijing with testing also now underway in Shanghai. Although BMW has several autonomous driving initiatives, Baidu’s ability to partner with top tier manufacturers such as BMW is testament to its unique positioning within China and one that is further strengthened by its access to location data collated from Baidu Maps, China’s most popular mapping application.

Baidu Apollo’s autonomous vehicles has a range of parnterships with OEM Chysler, BMW and Daimler.

However, even the most advanced self-driving cars cannot eliminate accidents entirely. The camera on Baidu’s autonomous vehicle currently has an accuracy of 95% in judging traffic lights but even a 1% inaccuracy rate can be disastrous at scale. Baidu has also highlighted several outlier instances such as the “misclassification of traffic light detection” and “localisation error-causing drift” where accidents may be inevitable. Weather conditions such as severe rainfall and snow will also limit the ability of driverless sensors to function properly.

To address this, Baidu has partnered Zhong An to explore a range of auto insurance offerings that cover extenuating circumstances for autonomous cars and will ultimately bring location based insurance products to commuters that are increasingly choosing shared and multiple modes of transportation.

2. Apollo 3.0

The second front in Baidu’s autonomous driving effort is an open source middleware that essentially allows car manufacturers to build and localize their own autonomous vehicles for China. Operating at the intersection of navigation software, hardware such as sensors and computational vision sensors and traditional automobile manufacturing, the Apollo 3.0 program mirrors the approach of Google’s Android which supplied dozens of smartphone manufactures with operating systems through which Google services are then heavily used. Similarly, by helping car manufacturers to build their own autonomous vehicles, Baidu is hoping to establish a foothold through which it can later monetize navigation services, insurance and licenses.

A range of features are also available through the Apollo 3.0 program including core navigation, early warning object detection and emergency steering. However this technology holds risks as well as rewards. The fact that autonomous vehicle manufacturers will need coverage for the risk of cyber attack, and breeches of data privacy is now widely accepted with Tesla recently admitting a breach that permitted remote access to navigation functions including turn signals and brake pads. Anticipating this, Baidu is developing cyber liability coverage in partnership with PICC.

Notwithstanding these exploratory partnerships with insurers, and the fact that both UBI and cyber insurance are still subject to regulatory approval in China , an over-reliance on software will open the way for multi-tiered insurance products that combine commercial liability for auto manufacturers, personal accident coverage for travelers, and cyber insurance for software providers such as Baidu.

Finally, the notion of shared mobility, is also gaining momentum in urban centers with the emergence of ride sharing platfrms.  In fact that one out of five cars sold in 2030 will be a shared vehicle and with this the demand for commercial insurance and the opportunity for commercial fleet insurer will also prosper as autonomous trucks will be subject to road-type limitations and restrictions.

Ultimately, although Tencent and Alibaba both have active autonomous driving programs, neither can match the scope of Baidu which now counts 26 partners including Ford, Daimler and Mercedes. The Apollo programe, combined with Baidu’s ongoing strength in mapping and integration with China’s leading ride-sharing platform is undoubtedly Baidu’s most significant contribution to digital insurance to date. However it is also pursuing several other initiatives including:

Du Xiaomen

Originally conceived as Baidu’s answer to Ant Financial (featured last month here), Du Xiaomen provides a range financial services and mobile payment functionality to Baidu’s user base. However, four years post launch Du Xiaomen’s market share is a fraction of its equivalents at Alibaba and Tencent. A separate joint venture with Allianz to launch an online insurer Bai’An also struggled to gain traction whilst Baidu’s insurance aggregator met a similarly mixed reception upon release. However, Baidu has relaunch with a focus on personal accident and travel products from Guohua Life, Taikang Online, AIG, MetLife and Aegon-CNOOC Life has made more progress.

Elsewhere, Baidu has also been active in the connected home. Although the vision of an IoT enabled home has proven more elusive than first imagined, Baidu’s Xiaoyu assistant boasts a screen and camera that allows for a visual interface and video chat, an interesting and potentially disruptive new distribution channel for China’s 8 million agents whilst further enabling life and health insurers to imbue policy query and basic customer service functionality.

Although Baidu’s efforts to capitalize on its strength in search and AI use cases in order to distribute insurance have yet to produce results, its renewed focus on tailoring products to particular user segments in addition to its early steps into the connected home demonstrates a patience that will stand to it as China’s insurance industry continues to mature.

Conclusion:

Baidu’s quest to realize autonomous driving in China is a worthy cause and one that will not only enable it to influence the evolution of auto insurance but also reduce the number of cars on China’s road by 40%, vehicle emissions by 70%, and traffic accidents by 90%. For insurers, the opportunity in the medium term is to partner with the likes of Baidu in order provide coverage for outlier use cases in which autonomous vehicles are unable to meet operating standards. In the long term, as autonomous cars become mainstream,  the same insurers must prepare for an era in which transportation is becoming more shared and autonomous as millennials increasingly choose on demand usage over out right ownership.

At that point, insurers who have achieved a credible position in the market will provide a range of services to autonomous vehicle manufacturers that will span commercial fleet coverage to ride sharing platforms, cyber insurance to OEM’s, and multi-tiered personal accident insurance to consumers. In any case, Baidu’s ongoing efforts to upgrade urban transportation in China is a disruptive force in a segment that represents 40% of China’s annual gross written premiums.

Watch now: Video insight into the wider issues raised in this article with Swiss Re’s Yannick Even and the TDI team