The future of motor insurance – Whitepaper by HERE and Swiss Re
Article Synopsis :
For the automotive industry relatively little has changed over the past three decades, however new driver assistance technologies and connected services are ushering in a whole new world of motoring. In this new world, the driver hands over ever greater responsibility for his or her driving decisions to the vehicle.
In “The future of motor insurance: How car connectivity and ADAS are impacting the market” by SwissRe and HERE it is estimated that advanced driver assistance systems (ADAS) could wipe out USD 20bn of insurance premiums globally by 2020. Currently, motor insurance generates 42 per cent of all non-life gross premiums, which is the largest single slice of global insurance premiums.
The whitepaper takes a look at how two important developments in particular – the growth of car connectivity and ADAS take-rate – could impact the market for and distribution of motor insurance. The paper also focuses on the potential implications of improved road safety and discusses how car connectivity could create a system of engagement around the car where the vehicle is not merely a means of getting from A to B but a conduit for new personalised services for car owners and mobility users alike, in turn creating new business opportunities for automakers and the insurance sector. The paper also explores how the ADAS market is expected to evolve in the next four years:
- In 2020, North America, Europe, China and Japan are forecast to account for 92% of the global ADAS production and for 93% of the global ADAS revenue of USD 20.5 billion
- The rates of ADAS production growth are projected to be the highest in Europe and North America – with a CAGR of 22%
Although the authors are uncertain about the impact of vehicle connectivity on the insurance sector, according to them, doing nothing is not a viable option. Insurers must take strategic decisions now about how to thrive in an era of data-driven insurance. To justify this proposition, the whitepaper highlights the impact of ADAS on various components of an insurer’s combined ratio:
- Acquiring – Increased car connectivity and the creation of a system of engagement around the car opens new distribution channels for selling motor insurance or cross-selling different insurance products to the driver.
- Writing – Connected cars generate vast quantities of data which can enable insurers to select and price risks more accurately.
- Servicing – Car connectivity simplifies the servicing of insurance policies.
- Claims – Car connectivity and the introduction of increasingly sophisticated driver-assist technologies and autonomous driving will lead to significantly improved road safety.
- Premiums – As car connectivity and ADAS in principle lead to a reduction in expected losses for insurers, overall insurance premiums for drivers should decrease.
The whitepaper concludes that connected car and ADAS are expected to disrupt the risk landscape opening a host of opportunities for insurers that quickly and successfully embed new technologies and data analytics capabilities into their business models.
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Digital Insurer's CommentsThe emergence of connected ecosystems and ADAS will decrease the total risk pool of traditional motor insurers as the assisted/driverless world will inherently be safer. The rise of tech enablers such as Uber are popularising the sharing economy, which will further dent the risk pool since there will be fewer cars on the roads.
So with these shrinking numbers what are non-life insurers to do? Though it seems like an existential problem, in our view it really boils down to data—the ability to harvest and analyse riskstreams from new sources. There is also opportunity in underwriting new forms of risk emerging in the connected world, for example, data privacy and cyber-security.
In both cases data is king. The better equipped you are to slice and dice it the brighter your prospects.
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