The Revolution: Autonomous, Connected, Electric and Shared Vehicles
A Canadian insurer recently unveiled plans to integrate insurance products within Autonomous, Connected, Electric, and Shared Vehicles (ACES) and brought in LDR to provide strategic advisory, market intelligence, and project management services. This report summarizes our intelligence findings.
Overview
Advancements in ACES technology are transforming the mobility ecosystem. Auto insurers can take certain steps now to avoid disruption and adapt in this evolving landscape.
Smart insurers see partnership, specifically with original equipment manufacturers (OEMs), as an opportunity to cement an insurance brand/product across the mobility value chain to generate new revenue streams, provide improved customer experiences at reduced costs, and improve access to new insurance markets.
The financial success of insurer-OEM alliances is still to be determined. However, success in this regard requires insurers commit to innovation and assign disciplined management to identify, understand, and capture opportunities as they arise.
The Challenge
ACES technological advancements have led to unprecedented shifts in the automobile industry and threatened traditional revenue streams for auto insurers. Transportation is shifting from a model centered on car owners to one centered on an integrated mobility ecosystem characterized by ACES adoption, intelligent infrastructure, and the gig economy. The challenge facing insurers becomes what products to offer and how to distribute them, as auto insurance previously focused on individuals owning and physically operating vehicles. While there is great debate as to when the tipping point occurs, ACES adoption is already challenging the economics and existing products offerings of the auto insurance market, resulting in the need for insurers to rethink existing underwriting criteria and pricing to keep up.
The pace of vehicle automation is quickly accelerating.
As ACES consumer adoption matures, vehicle scale and distribution become the primary challenge. OEMs likewise move up the mobility value chain. OEMs are the builders of hardware (vehicles) and software (in-car digital platform), as well as owners of vast telematics data. As a result, OEMs are the gatekeepers to ACES market penetration. The result is a relentless and expensive innovation race within the OEM community to produce cutting-edge ACES products.
In this environment, OEMs are looking to new revenue streams as ACES adoption grows. OEMs now operate a range of commercial opportunities such as selling collected telematics data to analytics and insurance firms, or more disruptively, disintermediating the traditional insurer by developing their own insurance products and then obtaining reinsurance. Simply put, as the level of ACES automation increases the degree of driver liability shifts to product liability, which is held by OEMs. While there is strong reason to believe autonomous vehicle adoption results in safer roads, this shift in liability is expected to create “data deserts” – the lack of access to OEM-owned ACES claim data fundamentally challenges insurers’ ability to effectively price risk.
The Opportunity
While OEMs have a tight grasp on telematics data, they lack the insurance industry experience and market presence to successfully underwrite, price, and distribute policies. Insurers are thus well-positioned to partner with OEMs in the development of integrated, customer-centric products. Markel and Tesla pushed this frontier in announcing a usage-based insurance program intended to provide premium reductions for Tesla drivers.
Other insurers have been taking less direct routes to access OEMs by aligning with conduits such as middleware providers and car sharing/subscription programs to bridge insurance services with OEM products. Regardless of the path, such partnerships allow insurers to access OEM data and OEMs access to the expertise and insurance “paper” without incumbering OEM core business with the challenges of insurance operations.
Insurers are partnering with conduits to better position themselves with OEMs.
The relationship between insurers and OEMs doesn’t have to be a data “arms race,” although the route remains a possibility. Insurers thus face a unique opportunity, if not an obligation to long-term relevance, to partner with OEMs to create mutually beneficial solutions viable in the near-term.
The Path Forward
To stay ahead of competition, ambitious insurers must seek to understand, pilot, and implement ACES initiatives with OEMs and OEM suppliers. Such inter-industry alliances are no simple task, even for leading insurers with the internal resources to avert disruption in the near-term.
This customer-centric approach takes a culture and process centered on prototyping, market testing, project management, industry diligence, and most importantly, boots on the ground to build lasting inter-industry alliances. If done correctly, insurers, OEMs, and especially customers, stand to benefit from improvements in telematic data usage, product value, and premium rates.
The transportation insurance market is approaching a point where telematics and connected vehicles will define the core structure for insurers’ systems—this shift in balance requires stakeholders to reimagine the basis of competition and for insurers to recalibrate their definition of the ecosystem accordingly. The ACES evolution is already underway, and partnerships forged now will determine the ultimate winners.
The Project Team
Andy Roach
Andy provides financial and strategic insights to clients, with expertise in deal formulation, auditing, and business planning. Andy previously spent 7 years at Ernst & Young, where he served in a management role in Assurance Services within the Financial Services Organization. Andy graduated of the College of William & Mary with a degree in Business Administration. In addition, Andy earned his Master of Accountancy from George Washington University and is a Certified Public Accountant and licensed insurance producer.
Frankie Bennett
Frankie provides guidance and support to clients related to insurance and technology, with expertise in blockchain, imagery, and telemetry applications. Frankie began his career at The Zenith Insurance Company, where he spent extensive time in claims, underwriting, marketing, and loss control groups. Frankie graduated from the University of Southern California and recently passed Level 2 of the CFA.
Dylan Payne
Dylan has developed an expertise in digital growth and deployment strategies. He brings an ability to quickly take a business problem and create a technology solution in a short period of time. Dylan graduated from Duke University with a degree in Sociology certificate in Markets and Management and is a licensed insurance producer.
Jan Maceczek
Jan provides guidance and support to clients related to insurance and technology. Jan brings previous experience working in investment research, where he focused on the implications of public policy on technology, energy, and infrastructure. Jan is a graduated from Duke University with a degree in Public Policy and minors in Economics and Russian.