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Motor Insurance 2.0 – Morgan Stanley and BCG

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Article Synopsis :

Is the $200 billion global motor insurance market at risk of significant disruption?

 The Digital Insurer reviews Morgan Stanley and BCG’s Report on Motor Insurance 2.0

Motor Insurance markets in mature economies trending sideways per this report from BCG 

“Motor Insurance 2.0” from the Boston Consulting Group and Morgan Stanley definitely thinks so. The report, based on interviews with 45 senior insurance executives, OEMs and technology providers, and a global survey of motor insurance customers in 11 countries, suggests the cumulative impact of increased mobility, car technology, data availability, digitisation, regulation, and world economics will drive significant reduction in overall motor premiums. Consider:

  • Motor insurance risk pools in mature economies could shrink by as much as 40% by 2030 and 70% by 2040
  • Shifts from personal lines insurance to commercial lines could mean by 2030 the personal motor insurance market in some mature economies could be as much as 70% smaller than it is today
  • Non-traditional players like tech giants, OEMs and Telcos could corner a significant part of the motor insurance market – 55% of today’s drivers would purchase insurance from a non-traditional player
  • A strong shift in growth to emerging markets – China motor insurance premiums will grow 3.5x by 2030

Per the report, five trends are converging on the industry that when combined will have a material impact on the market in less time than many players expect:

  1. Rise of alternative mobility models: Ride-hailing, ride-sharing, and car-sharing mean consumers are foregoing car ownership.
  2. Innovation in technology: Both in-car and external technologies for safer driving are coming mainstream.
  3. Availability of data and digitisation of industry.
  4. Regulation: Adoption of car safety and speed control measures, deployment of driverless cars, new insurance requirements emerging.
  5. World economics: Growth shifting to emerging markets.

Loss of customer ownership combined with the erosion of traditional advantages in risk pricing, claims management and fraud control reduces insurers to the role of pure capital provider. BCG has constructed seven country market models to forecast year-on-year impact of what this means. It’s not pretty:

  • Conservative disruption scenario – Motor insurance market shrinks by 20% by 2030 and 55% by 2040
  • Heavily disrupted scenario – shrinks by 40% by 2030 and 70% by 2040.

In addition to the reduction in overall market size there will also be a shift from personal lines to commercial lines and product liability. Collision avoidance technology will be covered by manufacturers and OEMs through product liability insurance. New mobility businesses will bulk-buy fleet insurance. The shift from personal lines to commercial lines from 80/20 personal/commercial in 2015 will reach 50/50 by 2030 and 30/70 by 2040. This means a personal motor market in mature economies that is up to 70% smaller in 2030 than it is today.

Over time collisions will increasingly be the fault of the vehicle rather than the driver – meaning product liability will replace personal liability. Other findings include:

Growth will shift to emerging markets:

  • In 2015, China motor premiums were 13% of the global motor market, by 2025 it will be 20%
  • China motor premiums will grow 3.5x by 2030.

Consumers are ready to buy insurance from other players:

As the value of historic insurance data and traditional insurance expertise diminishes there is a clear and present threat from disrupters who could deny insurers direct access to a significant segment of the market. Tech giants such as Google, OEMs, and Telcos are the disruptors expected to enter the market. They have a wealth of customer data, analytics capabilities, and customer access. 55% of customers would purchase motor insurance from a non-traditional player with young drivers (under 34) even more likely.

Consumers seek advanced car safety features:

Consumers across all markets are willing to pay more and buy new cars sooner to get access to accident-proofing technologies. This means lower insurance premiums primarily through lower accident frequency.

  • 75% of consumers would accelerate purchase plans solely to access new safety features sooner
  • 70% would support their governments making accident reduction technology mandatory in all new cars

Insurers must adapt.  Recommendations include:

  1. Digital play – Use technology across the value chain to service the modern digital consumer, to better source and use data, and achieve improved cost efficiencies. A necessary step, but not easy as it requires fundamental organizational transformation.
  2. Partnerships – Enables access to new data and customers as well as revenue. Also the best way to defend against potential disruptors as invaders are less likely to attack an industry from which they are already generating revenue.
  3. Expand into adjacencies – Look to motor-related businesses such as repair, roadside assistance, and new forms of mobility. This will increase consumer engagement, allow the collection of more data, and replace lost revenues.

Link to Full Article:: click here

Digital Insurer's Comments

A personal motor market that’s 70% – $140b in dollar terms – smaller than today is very difficult to imagine.  But when you consider the trends outlined in this report – alternative mobility models, in-car technology innovations, competition from OEMs and outsiders, demographics – the massive shrinkage seems almost inevitable.

Warren Buffet is fond of saying, “When a good manager meets a business with bad economics the business usually wins.” So what’s a good insurance manager to do?

Going digital to serve the evolving customer and procure new sources of data is our first recommendation, though often easier said than done. Forging new partnerships and expanding into adjacencies will help you think less like an insurer and more like something else, which is the ultimate key to navigating the disruption.

Link to Source:: click here

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