Article Synopsis :
Connected, driverless vehicles are set to overhaul not just the automotive industry, but software, finance and telecommunications too. In this concise monograph ”Smart car, Smart Business Model” KPMG’s Alec McCullie, with a background in automotive (not insurance), explains how various industries are likely to converge around telematics.
Coverage of the auto revolution has focused on self-driving cars from companies such as Google and Tesla. But, per the report, the revolution is more far-reaching than that. Four areas will be critical.
- Telematics: Transferring real-time data between vehicles and specific agencies such as the manufacturer or an insurer to monitor (and tweak) performance, driver behaviour and usage patterns.
- Vehicle-to-x communication: Allowing vehicles to connect with each other and infrastructure systems to allow them to respond better to their environment.
- Cybersecurity: Ensuring smart systems – from in-car climate control and door locks, to cloud-based services accessed by a vehicle – are protected from unauthorised access.
- Autonomy: Building cars where some or all of the functions work without human interaction.
For insurers, the obvious opportunity is in usage based insurance [UBI]. But monetisation won’t necessarily come from winning market share by reducing people’s premiums – as there’s only so far premiums can be reduced. Instead, it will come from the more granular level of analytical insights into driver behaviour and vehicle usage.
Data will allow insurance companies to understand the precise risks associated with individual drivers (and even help drivers avoid loss events) as well as explore new revenue channels through non-traditional products and partnerships.
The real challenge, the report suggests, revolves around who owns the (data) analysis, how they understand the customer, and what they offer customers as a result. The insurance industry could learn from Google’s focus on monetizing knowledge, rather than products.
The next generation of connected vehicles will be better at creating a collaborative ecosystem for reporting driving conditions and environmental factors. OEMs, government agencies, and tech startups will play key roles in developing the right infrastructure. Telecos will also have a say enabling on-the-go internet connectivity.
Regulation will be key. The Department for Transport’s Centre for Connected and Autonomous Vehicles has already started taking steps to make the UK a world leader in this arena. Legislation drafted in the UK will likely shape regulation in other insurance markets globally.
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Digital Insurer's CommentsThe innovation we’re seeing in the auto industry, not only from OEMs but giant tech firms such as Google, Tesla and Apple, is unprecedented. Cars are rapidly becoming more about the software running in them than the vehicles themselves. New business models will necessarily emerge capitalizing on this paradigm shift.
Will incumbent auto insurers be usurped? In the liability area the answer appears to be yes, most definitely. As it is, liability rests with the driver; so if your Tesla is on autopilot and something happens, it’s your problem. But two OEMs, BMW and Ford, have already said publicly that they will assume liability for fully autonomous vehicles when they’re available in 2021 . . . so it’s t-minus four years to serious disruption.
How best to prepare? We suggest, taking a cue from this report, a focus on monetizing not products but knowledge of your customer represented by streaming data.
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