Tag Archives: car insurance

Evolution of Indian Motor Insurance

The Indian general insurance sector is growing at a healthy 17% a year. Motor insurance is the biggest chunk, accounting for 49% of the gross direct premiums earned (FY16), at $6.5 billion. The Motor Vehicles Act, from 1988, mandates that every vehicle should be compulsorily insured for third-party risks. With the expected growth in automobile sales (6% CAGR in the past 5 years), motor insurance sales are also expected to grow. These numbers are set to rise owing to the changing consumer profile, as well.

The legal mandate demanding the purchase of a third-party liability insurance policy compelled Indians to opt for motor insurance. It was a box that was needed to be ticked off, nothing more. However, the mandate did acquaint people with the philosophy of motor insurance. They started looking at the financial benefits associated with the policy, and the insurers capitalized on this window. Innovative offers and alluring discounts encouraged vehicle owners to look at motor insurance in a holistic manner.

Recent developments opened the gates wide, by allowing 49% foreign direct investment (FDI). The investment increased capital inflow, leveled the playing field and fostered better market penetration. Insurers now concentrate on offering innovative products, providing better administrative services and ensuring hassle-free claims.

Numbers Game

The Indian general insurance market grew from $2.6 billion to $13.4 billion in a span of 14 years, from 2002 to 2016, according to several reports by IBEF, and is poised to keep expanding.

See also: Motor Insurance: Get Back to Value!  

Warming Up to Digital Platforms

Traditional as well as up-and-coming insurance providers warmed up to going digital and created websites. Their offline activities also continued, but their online activities were future-oriented. Even though the insurers did not go all out with their digital activities, they certainly created an online presence, as it gave the following advantages to insurers as well as the insured:

  • Cost Factor

Operational costs reduced with the digital move. Customers benefitted from it in the form of pocket-friendly policies. Standardization helped insurers to service the customers efficiently and effectively.

  • Ditching the Agent

As motor insurance could be purchased online with a few clicks, the role of the traditional agent was curtailed. Simple forms demanded to-the-point information, and prospective customers filled the forms themselves, thus reducing the chances of wrong information and mitigating fraudulent activities. The service seeker and service provider spoke with each other directly, without any middleman.

  • Convenience

India was getting used to purchasing things online. From buying vegetables to searching for prospective life partners, people found a convenient alternate in the form of websites and apps. People researched about the features, fortified their motor insurance policy with add-ons and purchased or renewed their policies online, at their convenience. Features like cashless garage services made it easy for the insured to get a vehicle repaired conveniently.

  • Smooth After-Sales Service

New touchpoints enabled customers to address their grievances through social media. Insurers also considered it as a priority and started engaging with customers through platforms like Facebook and Twitter. Claim-related queries were addressed through social media platforms; everyone could see if a query was pending or was resolved.

Riding the Technology Wave

Over the years, technology has played a crucial role in making the Indian motor insurance sector efficient. Insurers offered several add-ons to the comprehensive motor insurance policy along with the basic third-party liability policy. Strong comprehensive policies came into the picture, and the insurer as well as the insured benefitted. There was a reduction in administrative costs without compromising the cost-efficiency. It became easier for the insurer to ask for necessary details and for the insured to provide them with Know Your Customer (KYC) norms. Customer acquisition as well as customer servicing costs went down, and the insurance sector’s reach widened.

The insurers were able to offer policies online, and customers could make an informed decision by researching and getting in touch with the 24/7-available customer service executive. Web aggregators made it easier for customers to compare policies online and then go for their preferred option. Mobile apps emerged and allowed the customer to contact the company instantaneously, and vice versa. Technological advancements made the industry transparent and accessible, and, soon, they will make insurance desirable.

Road Ahead for Indian Motor Insurance

It is high time that motor insurance premiums are not solely based on the vehicle’s model and its basic locking system. Data will make it possible to determine premiums based on the driver’s age, gender, driving record, location and several such factors. Technology will provide data related to average car speed and the manner of driving. All this will determine the premium, almost in a customized manner.

See also: The Sharing Economy and Auto Insurance  

Product, service, distribution, underwriting, costing, strategic partnerships and other aspects of the business will be determined keeping technology and data at the core; that is what we believe in at Acko. These new approaches will be used to engage with the customers, reduce risk and achieve cost efficiency. India is welcoming a Digital Life, and motor insurance providers are leveraging technology to cater to the requirements of the digital-first generation.

What Is the Future of Comparison Sites?

It’s no surprise that in the last few years how consumers shop for car insurance has changed drastically. Third-party comparison sites that provide car insurance quotes have taken the industry by storm, giving consumers the ability to shop, review and switch insurers faster than ever. But what does the rise of these sites mean to customers, and to insurance agencies as a whole? And where does car insurance shopping go from here?

Consumer Must-Knows

Getting a car insurance quote online through a comparison site may seem hassle-free, more efficient and more relevant, but as the industry evolves there are two main points consumers must be aware of:

1. Hassle-Free Doesn’t Mean Quicker or Accurate:
One of the main customer value propositions of car insurance comparison sites is their ability to quickly provide insurance quotes for a variety of companies that sell in a consumer’s geographical location. The problem is that to truly get an accurate car insurance quote, consumers must be willing to provide more details than sites that generate quotes request.

For example, most comparison sites provide quotes after a consumer has put in first name, last name, Zip code, age and car details. Using public rate filings from sample data, these sites then provide an estimate of what your average annual rate may be. What this fails to take into consideration is all of the unique variables that companies use to determine your risk profile, which ultimately determines your premium.

In addition, no comparison site currently covers the whole car insurance market. Consumers that go to three different comparison sites will typically not only be shown different providers in their area, but also different prices for the same company. This is because comparison sites often have deals that prioritize partner companies over cheaper and better options.

See also: The New Age of Insurance Aggregators  

Consumers are only being shown select companies, and those companies’ quotes are most likely inaccurate. So consumers are going to multiple car insurance companies, filling out numerous driver profiles and then comparing the rates they are being shown. This can be more time-consuming than simply calling one, two or even three companies to get a direct quote.

2. Cheapest Doesn’t Mean Best
With third-party comparison and review sites putting the strongest focus on which companies provide the cheapest insurance, getting the right insurance coverage has taken a backseat. While using comparison sites may result in paying less, it can also result in being underinsured. Having the proper car insurance coverage ultimately is a step toward financial protection.

Take a driver who opts for the cheapest coverage, which only includes the state’s minimum car insurance limits of 25/50/25. Let’s say that driver is found to be at fault in an accident that causes $35,000 of injury to the other party. It is up to the driver to then pay $10,000 out of pocket to cover the difference between what the insurance company has insured them for and the cost of the damages done.

One problem with comparison sites is that prices for higher coverage limits are not shown because they aren’t the cheapest option. Consumers must not be tricked into thinking the cheapest companies are the ones best-suited for them. Instead, consumers should find a policy with enough coverage to fully insure them and their financial assets, and then turn toward the tools available to them for saving money for that policy.

How Comparison Shopping Affects Car Insurance Companies

Not only are customers being affected by comparison sites, but so are car insurance companies themselves, with there now being a fierce need for competitive prices. Never before has it been so easy for consumers to find rates at just a click of a button. And while there is a concern over the accuracy of these rates that are being shown, it doesn’t take away the fact that customers are seeing these prices, and insurance companies are having to take that into consideration.

How do companies combat getting a call from a customer who has seen a quote for $200 less than what that company can actually offer? Some have become exclusive partners with insurance shopping engines, possibly under the assumption that, if you can’t beat them, join them. Others are working to make sure their logo, their rates and their brand aren’t being displayed. But at the end of the day, neither of these are benefiting the customer.

What Insurance Shopping Looks Like 5 Years Down the Road

There is no doubt that consumers have preferred the ability to compare, review and get quotes from a number of companies in a matter of minutes. But it’s only a matter of time before the perceived ease of use wears off. For comparison sites to truly succeed, one of two things will need to happen.

  1. A site will need to build personal relationships with all of the top brands. Until then, we can expect that rates will be inaccurate and that insurance companies will be listed by comparison site’s bias toward their exclusive partners and not by what’s best for the customer.
  2. A comparison site will need to be just that but for other comparison sites in the insurance industry. Yes, you heard right. For the comparison business model to work in the insurance vertical, a comparison site will need to compare quotes, offerings, discounts and top companies being listed on other comparison sites. And while prices still may not be 100% accurate due to the nature of how insurance rates are determined, this could potentially solve the solution of company bias.

See also: Waves of Change in Digital Expectations  

Because we don’t see companies such as State Farm, which only allows its appointed agents to to sell their product, ever agreeing to option number one, we have to suspect option number two is the next best solution. Is it a perfect solution? No.

Comparison site shopping as we know it will have to change in the next five years. How? We will have to wait and see.

New-Era Cars – Do They Spell Doom?

Telematics-fitted cars, cars with cruise control and emergency automatic braking, driverless cars and what not… the era of continuous innovation in this industry keeps on permeating our day-to-day life. While the underlying theme is reducing the number of accidents and promoting comfortable/safe driving, car manufacturers keep adding “features” that will transfer operational control of the vehicle significantly from the driver to automated systems. The car industry doesn’t preclude a futuristic scenario (though not necessarily in the near future) when we will be travelling in Uber & Lyft without drivers!

Anyone who is associated with insurance will find it very interesting to look at how these innovations might affect car insurers. In today’s world, where the car insurance line of business is already stung by shrinking margins (due to competitive pricing on one hand and increasing claims payments on the other), these auto innovations are, in the opinion of many insurers, bound to further reduce written premiums. As we leverage automation to reduce human driving errors, customers are also going to expect car insurance premiums to go down and shop around for the cheapest insurance premium rates, further triggering price wars.

See Also: A Word With Shefi: At Smart Drivinc

However, innovations are going to affect the car insurance industry in various ways – which might force insurers to think of newer business models (products, services, partnerships, etc.). Four key areas within the value chain that have the potential to alter the future game plan for auto insurance are:

  • In case of an accident (though expected to be highly improbable) who will assume the liability?  Will it be the owner/driver of the car or its manufacturer or the equipment or software manufacturer? How is the claims management ecosystem expected to evolve? Will we need specialized adjusters to handle claims involving damages to the supporting equipment?
  • Rating and underwriting for car insurance will focus more on the security and safe functioning of the vehicle along with its set of software and hardware that enable the driverless capabilities — such as onboard software, cameras, radar, altimeters etc. — instead of the human driver. Though the frequency of accidents will come down rapidly, the loss expenses per accident is bound to go up due to enhanced cost of the supporting equipment.
  • There will be new coverage developments relating to third-party collision damage due to high cost of equipment as well as the cyber risk to software that governs the driving functions of the next-generation cars.
  • There will be opportunities around data analytics to harness the huge amount of data made available for better risk analysis and rating, loss development, location analysis, etc.

Do auto insurers need to fear that the next-generation cars will sound the death knell for their business? Or will they see newer opportunities to engage with their customers and enhance their market share?

We are all set to witness lot of action in this space in the coming years as new-era cars continue to evolve and auto insurers attempt to match these developments with newer strategies around products, distribution and policy services!

Fascinating Patent Filing by State Farm

Sometimes other drivers can make you crazy. Maybe you’ve gestured to boneheaded motorists, safe in the anonymity of your car and the flow of traffic. Perhaps you’ve let your anger at other drivers get the best of you at times because there’s no one else in the car to judge.

But State Farm is on the case. It has developed plans to monitor your every move while you’re driving, measure your emotions, detect angry behavior and deliver stimuli such as music to calm you down.

The plans, as revealed in a patent application, would combine biometric measurements with automotive data to create a “total impairment score” that could be used to set customized car insurance rates.

“Every year, many vehicle accidents are caused by impaired vehicle operation,” State Farm says in its application, recently filed with the U.S. Patent and Trademark Office. “One common kind of impaired vehicle operation is agitated, anxious or aggressive driving.”

Are you sweating, yelling or waving your arms while you drive? State Farm’s “emotion management system” would use a variety of sensors and cameras to monitor your biometrics, including:

  • Heart rate
  • Grip pressure on the steering wheel
  • Body temperature
  • Arm movement
  • Head direction and movement
  • Vocal amplitude and pattern
  • Respiration rate

The system could use “infrared optical brain imaging data” to get deeper inside your head. State Farm might even know if you’re giving the evil eye to another driver: Measurements include gaze direction and duration, eyelid opening and blink rate.

And impaired driving is not confined to angry and aggressive drivers. State Farm also would consider nervousness, distraction and drowsiness. Other sensors would keep track of your vehicle: Are you swerving, accelerating or driving too close to other objects?

[Compare car insurance quotes through NerdWallet’s Car Insurance Comparison Tool.]

Smell this and calm down

If you are “emotionally impaired” – as measured by State Farm, not your spouse – the patent-pending system would select and deliver stimuli to change your behavior. The patent application outlines a variety of options, including relaxing music, a recorded message, sounds of nature, fragrance or a blast of cold air. The system might even suggest you stop at a coffee shop or scenic overlook.

Robert Nemerovski, a licensed clinical psychologist in the San Francisco area and an expert on anger management and road rage, was skeptical about State Farm’s patent. He questioned whether an automated system could be sophisticated enough to account for the unique characteristics of individual drivers.

“I would be concerned about individual differences: people on medication, the elderly vs. the young,” he said. “Maybe they have PTSD, or they’re in recovery from a heart attack. [State Farm] would need to know nuances of human behavior and human bodies.”

In addition, “People don’t want someone patronizing you or telling you to calm down. I’m not sure it would be successful psychologically because it would be rather annoying,” he says.

state farm patent

State Farm’s depiction of an emotional impairment score on a mobile device, from its patent application.

State Farm envisions an “emotion management system” that goes beyond just monitoring behavior. The system would store profiles for each driver so, for example, it would learn which music might reduce your hard braking or persuade you to stop tailing the car in front of you. This might spell an end to your loud music.

Each time you end a trip, the State Farm system would analyze the data and update your impairment score, which you could check on your mobile device.

Because the purpose of the patent application is only to describe the system, it leaves many unanswered questions, including:

  • How much would it cost per vehicle?
  • Who would pay?
  • How often would you have to refill your fragrance containers?

State Farm, the nation’s largest car insurance provider, declined to comment on specifics of the patent application but provided this statement to NerdWallet: “State Farm is actively innovating in a number of areas that are important to improving how we meet the needs of our customers. The patent  . . . is just one example of State Farm’s innovation. Because of the nature of our innovation work and patent program, we are unable to provide further comments at this time.”

Angry about car insurance bills, too?

According to the application, State Farm is considering applying the “comprehensive impairment level” to car insurance in several ways, including:

  • Adjusting your insurance rate, up or down.
  • Requiring you to buy a minimum amount of auto insurance, or limiting how much it will sell you.
  • Offering you a discount for using the system.
  • Flagging your policy for possible cancellation.

While State Farm’s plans may never be implemented, the carrier clearly has many ambitious ideas about monitoring customer behavior, such as its previously described ideas to price car insurance by the trip and deliver targeted ads based on where you drive.

Many consumers aren’t aware that auto insurers are preparing to unleash a tsunami of such services based on telematics, systems that track your car and driving habits. Progressive was the first to enter the space and dominated it for a while with its Snapshot usage-based insurance program.

“Other big auto insurers don’t want to be in second or third place again,” says Donald Light, director of North America property/casualty insurance for Celent, a research and consulting firm that focuses on information technology in financial services.

“I believe in about five years it will be a standard part of an auto insurance policy,” Light says.  “Insurers will say, ‘If you don’t want to use it that’s fine, too, but we’ll charge you based on not having it.’”

Light sees one large hurdle to State Farm’s emotion-management plan: The company will have to convince state insurance regulators that the emotional impairment scores accurately reflect risk.

“The key qualifier is that these kinds of data have to make actuarial significant difference in the ‘risk’ of different drivers,” Light says. For example, if State Farm wants to charge more based on driver agitation, the company will have to prove that agitation causes crashes.

Nemerovski says State Farm’s emotional management system might appeal to millennials, who are comfortable with the idea of measuring physical and other metrics so they can be improved.

“But I don’t think people would want it to be shoved down their throats,” he says.

connected

How to Insure the Sharing Economy

During the snowstorm that hit the East Coast in January, I took some time to clean up my office and read reasonably current newspapers and trade magazines. I quickly identified many opportunities for new insurance products, mostly around shared assets. For example, an article on Millennials and the sharing economy explained that (primarily young) people make money by sending selfies of what they are wearing every day to a website called CovetMe; they get paid based on the brands and looks they are sporting.

They Uber their way to work, school or social events (when did Uber become a verb?) as a driver or passenger; they use their subscription to a shared car service such as Zipcar to take occasional trips; or they get paid for allowing advertising on their own car by subscribing to companies such as Carvertise. FlightCar gives you free parking at big airports if you let other travelers use your parked car when you are traveling. Similar sharing activities take place with homes, clothing and accessories, occasionally used tools and equipment and even medical equipment.

All these shared assets need to be covered in different ways than the traditional, personal lines homeowner’s or car insurance policies. Occasionally renting out assets to third parties or shared ownership of one asset between non-family members creates a different risk profile than self-use only, both for property coverages and especially for liability.

Think about deductible coverage between multiple owners in case of a claim, good driver discounts or multiple non-familial owners getting involved in the same accident, as liable parties and as claimants. The insurance market has been pondering insurance solutions for the shared economy for a while now and found ways to cover Uber drivers or Airbnb landlords or offer non-owner car insurance. As an industry, however, we defaulted to our classical model of insurance and put a commercial coverage, bought by the shared economy company for their members,  on top of individual personal insurances where needed.

It works, but, as one can imagine, it is a bit clunky. Especially on larger claims, I expect delays and issues to occur concerning liability, wear and tear, acceptable use of assets and confusion around which policy should pay followed by subrogation. Now, most shared-economy companies have stated that they will reimburse their members for losses and will figure out later what is covered by which insurance. This is a good thing for their members, of course, but it doesn’t necessarily help insurers very much.

We should be able to do better and create truly new insurance coverages for the shared economy. For example, why wouldn’t an insurer work with one of the new tech companies that provides people with a cloud solution to document all of their assets with pictures, videos, sales receipts or warranty documents? Why wouldn’t an insurer create a comprehensive coverage for property and liability for all these clients’ assets, under the assumption that they will be shared? Tag the key assets with a sensor and learn from usage data. Use telematics data on the car use. Limit home rentals to one or two partner companies and learn from usage analytics.

Why wouldn’t a carrier try a pilot with a segment of young people with limited assets, in a single location?

I know that this is not a simple proposition and that, in creating these kind of coverages, many hurdles will be encountered. I do think, however, that the market is ready, and that the sharing economy will become a force to be reckoned with soon. So, we might as well figure out how to insure and service that force.

As my colleague Mark Breading stated in his recent research brief, Insurance in the Connected World: Observations on Opportunities and Threats, “Actively participating in the rapidly growing sharing economy will be critical for personal lines insurers. Asset ownership is shifting and requiring a different approach for managing and protecting the assets.”

It is not going to be easy, but customers will count on our industry to develop solutions to protect their shared assets. We have successfully been supporting changing economies and technologies for centuries now – I am sure we’ll also find a solution for the new sharing economy in a connected world.