Throughout history humans have been on the move, and they found ways to handle the associated risks. Since the earliest forms of mobility protection - possibly marine insurance in Greek and Roman times - insurance providers have adapted as new means of mobility emerged.
Today, as Mobility as a Service (MaaS) becomes a fast-rising trend, insurers must again consider how they will change, possibly facing this disruption by partnering with insurtechs that could help solve new twists in the mobility value chain.
MaaS is the latest twist on mobility:
If anyone thinks that Autonomous Vehicles (AVs) and MaaS represent the first time the insurance industry has faced mobility disruption, think again. Imagine the dawn of the automobile era when the first collision policies were issued to adventurous motorists. Or ask your parents if they remember insurance kiosks at airports, ready to sell last-minute life policies to nervous flyers at the start of the jetliner age.
These are just a few examples of mobility insurance, which for this article we'll define as products and services insurers develop to protect travelers, their possessions, or others, including owners, investors or passers-by. They could be impacted by any mode of transport, which to date has been for example a stage coach, motorcycle, or delivery van, but in the future could be a driverless vehicle.
One of the current themes in mobility insurance is the rise of MaaS, as technology enabled ride-sharing services gain popularity, along with much fanfare about the introduction of AVs. These trends suggest that individual ownership of vehicles will decline and the emphasis for insurers will shift from B2C protection of drivers to B2B coverage of fleet owners and AV manufacturers.
Data relating to this shift of liability are astounding. KPMG estimates that the balance of personal and commercial premiums will shift from 80/20 today to 40/60 by 2040 and traditional insurance premiums will fall by as much as 40 percent by 2040, due to higher road safety through AVs.1This could drive a 90 percent drop in accident frequency and approximately 70 percent reduction in auto losses by 2050.2
It's important to note that the MaaS movement may not have the same impact on insurers in all jurisdictions, since private car ownership isn't a universal behavior and there are only an estimated 1 billion cars globally. That said, the dominance of other modes of mobility in developing nations, from public transport to bicycles, reinforce the point that mobility patterns should be a key indicator on insurers 'dash board' of priorities.
Insurers ready for MaaS disruption?
Although these new mobility modes are gaining traction - and hype about AVs is accelerating - we've seen relatively little action `in the public eye' by the P&C sector to prepare for this changing marketplace. This isn't surprising since it is early days in the development of the technology and, it's difficult for an insurer to map a clear strategy around yet-to-be defined new business models. However, critics might suggest that the traditionally-conservative cultures within incumbent insurance companies are the reason that many have assumed a 'wait and see' attitude.
Their hesitancy to act could be a mistake, in light of commentary from KPMG in the recent Mobility 2030 report that said, “We expect those insurers that get it right to increase profitability by over 30 percent by 2040 after experiencing a dip along the way.” They also cautioned that, “Modest incremental change is not going to be enough: those who are bold and show real ambition for the future are likely to be the ones that ultimately succeed.3”
Finding a rewarding route to disruption:
Some observers suggest that the best way for insurers to play catch up with this latest mobility challenge is to forge strategic partnerships with the burgeoning insurtech sector. Indeed, in light of the many ways that AVs and MaaS could impact insurance distribution, products, underwriting, reinsurance and claims, it could make sense to partner with insurtechs that can quickly design, develop or disseminate remedies to each of these new challenges along the insurance value chain.
In recent years, we've seen many large insurers invest in, or form joint ventures with insurtechs, to rapidly inject fresh innovation into their organization or meet a new customer need with a tech-enabled solution. Similarly, insurers could opt to collaborate with insurtechs to form an industry-wide response to the mobility challenge.
Building successful partnerships:
While avenues for insurer/insurtech cooperation hold promise, the road can be bumpy, in part due to cultural differences between insurers and insurtechs. Lessons from past experiences offer best practices that insurers should consider. Among them:
- What is your mobility strategy? First and foremost, the insurer must map out an overarching strategy to address mobility and define its approach. Identifying which areas of the mobility value chain it plans to address can help an Insurer identify how it will begin to solve the challenge, including the type of insurtech partnerships it may pursue.
- How to grant authority and empower innovation? In many cases, insurers that have successfully heralded innovation have granted sufficient autonomy and authority to experiment, explore, succeed and fail. These companies have empowered their CEOs, Chief Innovation Officers and their innovation teams to make decisions and act without being constrained by conservative corporate oversight. Such freedom, with appropriate established controls, enables innovative thinking and results.
- How will you marry business and IT functions? To aid mobility strategy unity, and consistent execution, traditional insures must find ways to eliminate the separation between their own internal business and technology functions, to instill a shared vision, and complementary, supportive processes and performance measures.
- Who can you partner with successfully? Although traditional insurers may aspire to a dramatic culture change or embrace fresh-thinking insurtechs, realistically it won't happen overnight. An insurer must consider their existing culture and risk management approach when evaluating potential partners and assess if their teams can build productive inter-company working relationships. Over the longer-term, culture change can be introduced through disciplined change management programs.
- How will you work together? Insurers must determine the structures and processes that will govern their partnership and how they will manage differences in governance styles. For example, often innovation can flow quickly through an insurtech because of its lean governance or regulatory framework, whereas progress can be stunted by slower management decision-making or heavier processes within the incumbent insurer. How will you improve agility within your company to ensure innovation is not hindered?
Existing insurers have advantages:
While the issues outlined above may seem intimidating, there is much reason for optimism that incumbent insurers can rise to these challenges. There are many examples of large insurers that are forming successful partnerships with insurtechs, particularly in other new areas like on-demand cyber products, protection for share-used products, and leveraging new wearable and Internet-of-Thing technologies to add innovation to their product suites.
We should also remember that those insurers possess a number of advantages that could help ensure they are not disintermediated from evolving customer mobility needs. First, the large insurers are uniquely-positioned to build relationships with commercial clients and manufacturers because they are a legal requirement for the vehicle owners in most countries.
Second, they have a wealth of data on car ownership history that can be shared with manufacturers to help them understand their customers better. In most instances, car manufacturers have little interaction with customers after the new car has rolled off the lot. An insurer could help close that loop by incentivizing data collection (such as fitting telematics devices) in return for lower customer premiums, and share that data with manufacturers to provide greater insight into customers' usage.
This insider perspective of traveler behavior puts insurers in good stance to win their place at the table as new business models are developed. And it alludes to vast untapped new opportunities by which insurers could offer their data capabilities and customer insights to engage in new areas like traffic prediction analytics, urban and mass transport planning and increased prevention services.
The twisting mobility journey ahead:
Ultimately, there is no simple answer - nor a single answer - for insurers as they prepare for the latest twist in people mobility. Although driverless cars, ride-sharing and vehicle-on-demand technology could overturn long-standing P&C business models, the traditional insurers have ample opportunity to enter this fast-developing area. But, with predictions that a slow and steady approach will lose the race, insurers may need to refine the ways they partner with insurtechs, to position themselves for success with each future twist in human mobility.
Elisha Deol, Global Insurtech Manager, KPMG International, based in London, UK. Elisha is a knowledgeable professional in insurance technology with over 8 years' experience leading complex change programs. She has developed and built the Global Insurtech proposition which has supported clients in defining their Insurtech strategy, across EMEA and Asia.
Article originally published in The Digital Insurer's July 2019 newsletter.
1.Mobility 2030 - A shake up for insurance, KPMG International, Global Strategy Group, 2019.
2.The chaotic middle - the autonomous vehicle and disruption in automobile insurance, KPMG International, 2017.
3.Mobility 2030 - A shake up for insurance, KPMG International, Global Strategy Group, 2019.