New entrants seem to be coming out of the woodwork in insurance. The insurtech movement, the advance of emerging technologies and the appetite of the global tech titans are all contributing to new entrants, new partnerships and new business models. A few recent examples illustrate the new interest in insurance from those both inside and outside of the insurance industry.
WeWork partners with Lemonade. In what seems like a very natural partnership, WeWork plans to offer its WeLive members renters’ insurance through Lemonade. WeLive members rent fully furnished apartments from WeWork for short-term situations.
Credit Karma enters insurance. This fintech intends to build on customer relationships to expand into auto insurance. While the initial focus will be education – helping Credit Karma customers understand how credit and adverse driving affects insurance rates – the longer-term goal is to provide yet another shopping/comparison site.
BMW and Swiss Re partner for ADAS scores. BMW Group and Swiss Re will collect telematics data from vehicles related to the use of ADAS (Automated Driver Assistance Systems) and build scores that can be used by primary insurance companies.
Lending Tree buys QuoteWizard for $370 million. Fintech Lending Tree, which has been on a buying spree, moves into insurance with the acquisition of insurance comparison shopping site QuoteWizard.
Travelers partners with Amazon for the smart home. Travelers will set up a digital storefront on Amazon featuring smart home devices for a discount (especially security-related devices) as well as discounts on homeowners’ insurance.
JetBlue invests in insurtech Slice. This appears to be a pure investment play, but it is still interesting that an airline would be following insurtech and seeking investment opportunities.
Something is going on here. It is not as if there have never been new entrants or that companies from other industries have ignored insurance. But the flurry of activity and innovative partnerships, investments and market approaches may represent a bigger trend. Insurance is transforming, and, despite some of the doom and gloom warnings, a case can be made that there is more opportunity than ever for the industry. Even in the examples provided above, the emphasis is more on new opportunities than displacing incumbent insurance players. Indeed, in the Swiss Re and Travelers cases, the incumbents are part of the new partnerships – and these are just two of many examples.
One of the main themes of the examples highlighted above is the attention on distribution and customer relationships. While insurtechs are working with insurers on many opportunities to improve underwriting, claims, and other areas, so far the new entrants from outside the industry don’t appear to have the appetite to underwrite risk and handle claims. This may change, but it is likely that there will be even more interest from outside insurance in capitalizing on customer relationships. Above all, these new entrants and innovative partnerships serve to accelerate the transformation of insurance.
When “Car and Driver” magazine debuted more than 60 years ago (originally titled Sports Cars Illustrated), nobody could have envisioned the approaching changes that would transform life as we knew it – including all things automotive and consumer. Today, the expression “car and driver” suggests a completely different meaning as automobiles are becoming “driven” by software and technology and their owners are becoming passengers – and increasingly we are riding in vehicles we don’t even own but rather share or rent.
But while we await our future, current innovations in vehicle and consumer technologies have already emerged to create a transition period full of complex challenges and issues accompanied by potentially significant opportunities for all participants. While much attention is being paid to the emergence of telematics and the connected car, and seemingly endless amounts of investment capital are flowing to the many innovative and promising startups sprouting in this fertile global environment, something even more consequential is also beginning to evolve. Auto insurers and auto makers – once basically adversaries – are beginning to cooperate around many of the related opportunities.
These two industries, which serve and share a common customer base, have traditionally been wary of one another because they had so many conflicting interests. Carriers insure the people who drive the cars that OEMs make, and, when accidents inevitably occur, liability is frequently brought into question to protect the interests of one from the other. In addition, franchised new car dealers, upon whose success OEMs depend for sales and vehicle distribution, earn significant revenues from selling a variety of related products and services – including warranties and insurance, another area of potential conflict. Finally, when insured vehicles end up in collision repair shops as a result of accidents (which happens more than 20 million times a year), insurance carriers do their best to manage repair costs by encouraging these shops to find and use less expensive parts, which costs OEMs and their franchised new car dealers significant parts sales revenues. And, at a higher level, insurers and OEMs value and fiercely protect their customer relationships and have no interest in sharing them with others.
However, these dynamics are quickly changing as new mobile technologies are rapidly transforming consumer behavior and expectations and as new connected car and automated driver assist technologies begin to present significant new challenges as well as exciting opportunities to both auto insurers and OEMs. It is far from a given that today’s auto market share leaders will enjoy similar shares of future autonomous vehicle sales, and it is equally uncertain as to by whom and how these vehicles will be insured.
Tesla is positioning itself to do both. And so the ancient proverb that “the enemy of my enemy is my friend” seems to apply very well here. Evidence of insurer/OEM partnerships, both direct and indirect, is plentiful and growing daily.
Insurer/OEM connected car partnerships date back to as early as 2012 and include State Farm/Ford, Progressive/GM OnStar, Allstate/GM OnStar and Nissan/Liberty Mutual. In 2015, Ford conducted a “Data Driven Insurance” pilot program that provided participating drivers with their driver history for use in obtaining auto insurance. In 2017, GM OnStar began offering its subscribers 10% discounts on auto insurance from participating carriers including National General, 21st Century, Liberty Mutual, State Farm and Plymouth Rock.
And data and analytics information providers Verisk and LexisNexis Risk Solutions, which collect data and analytics solutions for use by the insurance industry, have both recently launched telematics data exchanges with OEM participants including GM and Mitsubishi. Consenting connected-car owners have the option to contribute their driving data and seamlessly take advantage of insurers’ usage-based insurance (UBI) programs designed to reward them for how they drive.
Other innovative telematics data models include BMW CarData, which allows owners to share customized data with pre-approved third-parties such as insurers, auto repair shops and other automotive service providers. Drivers can obtain custom insurance coverage based on their exact number of miles driven while repair shops could automatically order parts in advance of service appointments.
For carriers, existing data pools and analytics tools will become less useful than real-time data streaming from connected cars coupled with increased proficiency in predictive modeling and machine learning. OEM/insurer partnerships can enable both parties to share the costs and co-develop big data mining technologies and advanced analytics methodologies to benefit their respective businesses. Insurers can improve underwriting and claims processes while OEMs can improve vehicle safety, design and performance.
Data provided by connected-car devices could be used to initiate claims processing, order damaged parts, triage required collision repair and manage other third-party services (e.g. towing, rental, appraisal) and record accident dynamics as well as occupant placement. OEM/insurer partnerships sharing this data could lead to better claims service and satisfaction and more reliable injury claim evaluation. OEMs could use this data to improve vehicle and occupant safety and could ensure that repairs are performed at properly certified collision repairers and that appropriate parts are used in the repair.
OEMs and insurers can partner to offer customers innovative customer experiences, becoming primary points of contact for risk prevention and new hybrid insurance products as well as dealer parts, service and sales opportunities. New revenue sources for both parties could include Intelligent GPS for theft recovery, real-time notifications of traffic and other travel inconveniences, intelligent parking, location-based services, safety and remote maintenance services. Cost duplication from currently overlapping services such as roadside assistance and towing could be eliminated by single-sourcing such services.
To be sure, other telematics data business models have emerged that could threaten OEM/insurer partnerships. In June 2017, BMW and IBM announced the integration of the BMW CarData network with an IBM cloud computing platform that could help as many as 8.5 million German drivers who grant permission to diagnose and repair problems save on car insurance, and take advantage of other third-party services. IBM can also collect data from other OEMs over time, and BMW plans to expand the program to other markets. And technology companies, including Automatics Labs and Otonomo, are seeking consumer consent to sell data through their exchange platforms.
While we await the day that self-driving vehicles dominate our roadways – which will no doubt make many of these driver data initiatives basically irrelevant – we have the most pragmatic of all reasons why OEM/insurer partnerships make sense. Participants can mitigate their risk and reduce their investments in these costly but still relatively short-term opportunities as they position their companies for the as-yet-undefined future of transportation and insurance.
Imagine if you could pick between Uber drivers based on their driving experience. Would you hire an experienced driver who has logged hundreds of thousands of road miles or one who has driven just a few hundred miles? I’ll bet you’d go with the experienced driver.
Now apply the same question to driverless cars. How would you pick? The same logic applies: Go with experience.
By the miles-driven heuristic, recent reports released by the California Department of Motor Vehicles show that Waymo (the new Alphabet spinout previously known as Google’s Self-Driving Car program) is running laps around its competitors. As with human drivers, experience matters for driverless capabilities. That’s because the deep learning AI techniques used to train driverless cars depend on data—especially data that illuminates rare and dangerous “edge cases.” The more training data, the more confidence you can have in the results.
In 2016, Waymo logged more than 635,000 miles while testing its autonomous vehicles on California’s public roads compared to just over 20,000 for all its competitors combined.
As the W. Edwards Deming principle that is popular in Silicon Valley goes, “In God we trust, all others bring data.” The data shows that Waymo is not only 615,000 miles ahead of its competitors but that those competitors are still neophytes when it comes to proving their technology on real roads and interacting with unpredictable elements such as infrastructure, traffic and human drivers.
Now, there are lots of ways to cut the data and therefore a lot of provisos to the simple test-miles-driven heuristic.
Waymo also leads the others in terms of fewer “disengagements,” which refers to when human test drivers have to retake control from the driverless software. Waymo’s test drivers had to disengage 124 times, or about once very 5,000 miles.
Other companies were all over the map in terms of their disengagements. BMW had one disengagement during 638 total miles of testing. Tesla had 182 disengagements in 550 miles. Mercedes-Benz had 336 disengagements over 673 miles. Fewer miles might mean fewer edge cases were encountered, or it might mean that those companies tested particularly difficult scenarios. But, low total miles driven casts doubt on the readiness of any system for operating on public roads. Until other contenders ramp up their total miles by a factor or 1,000 or more, their disengagement statistics are not statistically relevant.
What do those highway miles tell us about Tesla’s ability to handle city streets, which are more complex for driverless cars? Not much, but the 550 miles that Tesla did spend on public road autonomous testing speaks volumes about its dearth of experiential learning on city streets. (Ed Niedermeyer, an industry analyst, recently argued that most of Tesla’s 550 miles were probably logged while filming one marketing video.)
Notably missing from the reports to the California DMV are all other Big Auto makers and suppliers—and other players cited or rumored as driverless contenders, like Apple and Baidu. They might well be learning to drive on private test tracks or outside of California. But, until they bring data about their performance after significant miles on public roads, don’t trust the press releases or rumors about their capabilities.
Waymo’s deep experience in California does not guarantee its victory. Can it stay ahead as others accelerate? That remains to be seen, but it is clear from the California DMV reports that Waymo is way ahead on the driverless learning curve.
While the number of usage-based insurance (UBI) policies reached 14 million at the end of September 2016, most insurance companies are still overwhelmed by the challenge of using collected data to rate their customers’ driving habits.
This conclusion is based on analyzing the world’s 27 largest UBI programs, including those of Admiral, Allianz, Allstate, AXA, Generali, Desjardins, Direct Line, State Farm, the Hartford, Unipol, Uniqa and Zurich.
Progressive, the No. 1 telematics insurer globally, still uses a temporary device and does not collect GPS data. Unipol, the No. 2 player, still only collects mileage data from its customers.
We believe, however, that the prehistoric age of connected insurance analytics is ending. The era was based on the premise that all policyholders are reluctant to be “tracked.” But with most of us giving daily credit card, fingerprint, driving speed or location details to companies such as Apple, BMW or Vodafone, how to make sense of the self-censorship that insurers apply to their programs?
The truth is that more data benefits insurance companies… and the careful drivers! At the center of this change is advanced data analytics – the ability to extract insights from real-time data sources and discover risk-predictive patterns.
Progressive started a vast recruitment plan to attract data scientists. Generali also made a strong move by acquiring MyDrive, an analytics provider with early footsteps in smartphone UBI. Allstate just created Arity, which will collect data on drivers and sell analytics products to third parties. Simultaneously, Unipol created Alpha, a self-standing analytics and telematics operation.
The bulk of insurance companies is yet to act. To help them adapt to this new climate, Ptolemus published the Connected Insurance Analytics (CIA) report as a step-by-step guide to advanced analytics. It describes, analyzes and illustrates the process by which advanced analytics companies take raw driving data and transform it into real-time, individual risk profiles.
The investigation shows that acceleration, braking and mileage are the most used — unsurprisingly — but also that the range of factors is much wider and illustrates the complexity involved in selecting the correct criteria.
To offer a predictive driving score, the report demonstrates that insurers must gain a deep understanding of driving conditions. Adding contextual data, such as road type or relative speed, is a necessary step to price customers fairly.
New entrants—more customer-centric and digitally sophisticated than most established carriers—are transforming the way insurance is bought and sold. Their scalable, digital platforms, augmented by analytics, threaten the traditional distribution model. And at the core of the new operating models, powerful multi-industry partnerships are redefining the insurance distribution ecosystem.
In short, they are taking the “I” out of distribution, and replacing it with the “we” of effective, broad-based partnerships.
Established carriers urgently need to form such partnerships— and Accenture research shows that 72 percent have already done so, or plan to. But attractive alliances are, by definition, limited in number. Leading players are already inking the best deals, leaving the laggards with fewer options.
In short, it’s essential to move quickly—and gaining a first-mover advantage starts by understanding the new entrants’ true intentions.
They don’t want it all—but they are taking more and more.
Approximately US$4.9 billion has been invested in 196 insurance tech companies since the second quarter of 2011, with no less than $2.6 billion coming in 2015. Targeting the lucrative distribution portion of the insurance value chain is a no-brainer for the new entrants. According to CB Insights & Accenture Analytics, 56 percent of the recipients of these investments are focused on the distribution part of the value chain (see Fig. 1).
For the most part, these players aren’t interested in underwriting and taking on risk—it’s just too commoditized, requires too much capital, and is too heavily regulated. But they do want to own the customer experience. In fact, they promise to deliver a much better one—more attuned to the personalized service and tailored product offerings that 76 percent of consumers say they would switch providers for and 38 percent would even pay more to receive.
Delivered at low cost via digital channels and convenient, point-of-purchase touch points, the new entrants’ value propositions not only appeal to insurance consumers hungry for a simplified, transparent and personalized buying experience. They also provide an opportunity to gather a wealth of customer data, build customer loyalty, and establish robust residual revenue streams. Consider, for example, how many auto dealers and manufacturers now offer insurance as part of a car-buying or car-sharing package, or the number of retailers that link insurance purchases to reward programs.
As customers’ shopping habits shift from a linear to a non-stop path, the savviest new entrants are steadily raising their game (see Fig. 2).
Some are leveraging their superior understanding of the customer base to influence product design to align with their overall Brand. Case in point: the UK retailer, John Lewis— whose insurance products are underwritten by a panel of leading British carriers—now incorporates the famous John Lewis brand promise: “never knowingly undersold.”
Others are using their platform models to disrupt existing markets. The online US broker insureon, which serves more than 800 industries, can give customers a personalized quote in 15 minutes —a fraction of the time it takes traditional commercial brokers.
Still others are forming powerful, cross-industry partnerships. BMW, for instance, has worked with Allianz to form a truly integrated partnership in which Allianz-designed products are tailored to fit BMW’s brand promise. BMW advertises the high-end performance of their vehicles. Driver behaviorbased telematics are not consistent with BMW’s core message. Instead, BMW and Allianz partnered to create a usage-based insurance product true to BMW’s brand promise. BMW Aftersales is also part of the agreement, which aims to generate global synergies by distributing some 50 joint products across 27 markets.
You won’t win tomorrow by continuing to do what you do today.
The industry is starting to rise to the new entrants’ challenge. Accenture research shows that 59 percent of carriers are prioritizing a more customer-centric distribution model, and 48 percent have already built a customer-centric hub that leverages data and analytics for an improved service experience (or plan to do so in the near future).
But the established carriers still hesitate to take bolder steps. Fewer than half (43 percent) are planning or have completed the acquisition of startups or innovative competitors, for example.
Carriers that have partnered with new entrants are already reaping the rewards, leveraging their natural advantage as underwriters to strengthen their own customer relationships.
Since the start of their global partnership in 2009, Allianz and BMW, for example, have tripled their customer insurance business. Furthermore, the recent inclusion of a telematics tracking package for BMW’s electric cars—the hardware is pre-installed but only becomes operative if the driver also takes out Allianz insurance—puts the big German carrier at the forefront of digital innovation in the auto market.
AXA, similarly, has significantly boosted its digital capabilities by forming a strategic partnership with Facebook. The deal gives the French multinational insurance firm access to dedicated Facebook resources in innovation, analytics and mobile, thus furthering its ambition to become what AXA Group COO calls “the leading digital and multi-access insurer.” Facebook, for its part, furthers its ambition to build major partnerships with international companies, and expands its footprint in the French market.
Act now, or lose out.
So how can you create customer experiences that are at least as good as those the new entrants are offering—ideally, better?
The experience of the leaders suggests that you need to develop more customer-centric business and operating models, execute multiple models simultaneously for both the core and the digital businesses, and integrate the lessons learned about customer centricity from new partners, broadly, across the enterprise.
The following considerations will help get you started:
Pick your spots in alignment with your overall market approach. Determine your strategy and start by defining which customer segments are most attractive to you. Develop tailored value propositions and identify new product or service offerings, and then evaluate which non-traditional partnerships and business models will complement them. If your target customers are high-net-worth individuals, for example, you might seek out a luxury goods retailer.
Rethink your product design approach to enable personalization at scale. Develop capabilities that enable faster product deployment, tailoring to specific partner value propositions, and modular product architecture supported by analytics at a granular level.
Develop a supporting digital strategy that aligns to customer expectation, business vision and IT platforms to fulfill 4 fundamental objectives of customer experience:
Execution of fully-informed and real-time interactions
Expansion of awareness and extension of reach
Delivery of highly personalized experiences
Creation and distribution of rich, interactive content
Build cost-effective and flexible back- and middle-office operations. Support them with a flexible technology infrastructure to make the economics work.
Define a win-win partnership model. Define the role you want to play in the ecosystem. Align on the key success factors upfront through clearly articulated success metrics, well-defined customer segments, and one brand promise.