Opinion: Where Are We Headed on Autonomous Vehicle Insurance?

This article is by John Phillips, Managing Director EMEA at Zuora. John has spent over 25 years in the enterprise software industry at major software vendors including Oracle, EMC Corp, and OpenText, but has demonstrated expertise at much smaller firms designing and implementing growth strategies within innovative/early adopter markets. 

John Philips zuora article on autonomous cars

The world is changing fast for the auto-industry. The government’s three-year regulatory review to prepare the nation for autonomous vehicles is one of many measures brought in to ready the nation for its driverless future. What’s more, over the past ten years, the general trend away from ownership and towards subscriptions has hit the automotive industry hard. Porsche, Volvo, Ford, BMW, Cadillac and Mercedes-Benz have all recently announced subscription programs that are quickly gaining traction. The boom in ride-sharing services urbanisation and a general lack of interest in car ownership among young drivers has also served to ease pressures on premiums significantly.

What’s more, working to move away from manned transport has sought to eradicate the risk of human error on the roads – an element that can be attributed to 94% of road accidents. With the combination of environmental, demographic and evolutionary factors convening simultaneously to make such a strong case for the advocacy of a driverless network, it’s no wonder that it’s won public sector support.

With such change within the industry, coupled with the current expectations to get driverless vehicles on the road within such a tight timeframe, there’s an urgent need to re-evaluate many aspects of the automotive sector from road users to drivers, dealers, insurers and beyond.

In the insurance sector, we can see this shift starkly. The industry is moving away from fixed rates and rigid actuarial tables towards towards dynamic pricing and personalized services.   Today innovative insurers like Metromile, for example, are currently offering “pay-per-mile” insurance for low mileage drivers. But the eventual move to vacate the driver’s seat once and for all will require insurers to completely rethink the way in which they assess a driver’s history to assign a premium. Smart insurers are anticipating this influx of technology into their field by partnering with market challengers to future-proof their offering.

As the industry slowly transitions to focus itself around the car and services it can supply, here are the three key ways that we anticipate the insurance industry to respond:

Volvo-autonomous cars insurance part of lease package

PAYG  premiums, based on who is driving, where they park, commuting, leisure interests & data sold or transferred – all possible scenarios

Lower, personalised premiums

A driver’s personal history has consistently been the most vital pricing aspect of automotive insurance. But as the introduction of connected fleets of vehicles draws ever-closer, as does the continued dip in ownership. Experts predict that the advent of driverless cars will bring about continuously running cars with multiple owners as a result of the continued wave of consumers valuing experiences and outcomes, over individual products they own. This is likely to have the effect of reducing premiums overall due to a lower level of individual vehicle accountability. However, until that day of connected fleets arrives, insurers will look to incorporate more real-time data and a highly-intuitive analytics functions into their evaluation of connected vehicles. The goal being, to have premiums reflect driving behaviours accurately as possible.

Air, an innovative real-time cloud system for car data analysis, is already working to do this. CEO, Igor Valandro commented that the company’s goal “is to connect everyday life in innovative and surprising ways”. The business, which ultimately can make any car a connected vehicle by harnessing services that protect against theft, manage fuel consumption and provide diagnostics, is working to offer car insurance on a performance-based “pay-how-you-drive” costing model. This allows drivers to purchase insurance services as a subscription.

An alternative delivery method like this allows customers to easily manage their vehicle health and associated services through a single interface, whilst feeding information directly to third-party and brokerage firms. By leveraging data in this way, insurance firms can begin pivoting towards performance-based charging in a way that’s in-line with the growth of connected car technology and the metrics that it will be supported by.

Future-proof against fraud

With an abundance of data fed through in real-time, firms can get to know their customers better than ever before. This, of course, has an impact on the way in which companies charge, but can also work to reduce fraud claims.

Earlier this month, the Metropolitan Police offered fresh warnings about ‘ghost broking’ scams, the spread of which is being aided by advertising on social media websites. These fraudulent claims work to offer consumers policy options that unfortunately really are ‘too good to be true’ leading to penalties and even the seizing of vehicles. Their ability to sell illegitimate policies is aided by the use of false information obtained from reputable sources.

The growth of data-powered subscription services, enhanced telematics and “pay how you drive” data, all allow insurers to get to know their customers on a far deeper level, making such fraudulent activity far more difficult. Soon firms will be able to move towards stricter verification processes to crack down on the emergence of forgeries, building security on both sides of the equation.

Data-leveraged loyalty

On top of this legal boon, the wealth of connected car data that insurers could stand to own will also assist in the upselling of related products and services. Take for instance Volvo: CEO Hakan Samuelsson predicts that subscriptions will account for a quarter of the company’s total sales within five years, generating a robust platform of potential new services in the process.

The benefit of this to consumers would be a flat-rate recurring fee for customers, including leasing options, service costs and of course, insurance. But what this would mean for businesses is the ability to secure a consumer at a steady charge for a minimum of 24 months. By creating this ongoing revenue stream, insurers and partners alike can work to win and retain customer loyalty over a longer period of time – potentially standing to be a great boost to customer acquisition strategies.

With the incorporation of new, innovative and most importantly, disruptive ways of using data, insurance firms can get to know their customers on an entirely new level. They can not only create better, more accurately priced policies but safe-guard against fraudulent practices. Whilst eliminating the driver in autonomous travel may seem to put personalisation at risk, the increased use of insights can create a less-siloed and essentially, more profitable insurance ecosystem that works to build loyalty by giving consumers far much more than just cover against risk.

 

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