Tag Archives: Chevrolet

Autonomous Car Tech Reaches Mid-Market

As part of the 2016 edition of the Usage Based Insurance study, we analyzed the impact of autonomy on the insurance market. We forecast that 380 million semi-, highly or fully autonomous vehicles will be on the road by 2030.

This might sound like a lot, but then at the Consumer Electronics Show in Las Vegas we heard that new manufacturers are entering the race. Typically, we expect the luxury brands to foster the development of autonomous vehicles (AVs), with Mercedes, BMW and Tesla all topping the list of development activity. This time, however, it is the mid-market brands such as Nissan, Ford and GM that are making the announcements.

All three arrived at the show with news and partnerships up their sleeves as the competition grows ever more intense.

  • Nissan, in partnership with Renault, announced 10 vehicle models with autonomous capabilities on the road by 2020, with single-lane control from this year and rolling out multi-lane control intersections assistance from 2018 onward.
  • GM announced a $500 million investment in Uber rival Lyft, which GM says could lead to the development of a fleet of driverless cars, some available for hire, as well as a network of car rental stations. This announcement follows news regarding the development of GM’s self-driving version of the hybrid Chevrolet Volt.
  • Ford revealed an agreement with Amazon, aimed at linking cars with connected homes and the Internet of Things. Ford was also expected to announce a tie-up with Google, but that did not happen, possibly because of recent regulatory proposals limiting driverless vehicle testing in California. Instead, the car maker stated that it would triple the size of its Fusion Hybrid autonomous research fleet this year to 30. Ford will also integrate new solid-state lidar sensors that create real-time 3D models of the surrounding environment.

Although many autonomous functions, such as cruise and parking, are aimed at improving comfort, most of the development today is focused on safety and crash avoidance.

These capabilities will have a direct impact on the insurance industry a lot sooner than the driverless car. We analyzed and quantified that impact in the study to precisely estimate the share of accidents that could be avoided with the introduction of advanced driver assistance systems (ADAS).

For example, we concluded that frontal collision avoidance and cruise systems could reduce losses by as much as 50% (depending on the level of sophistication).

ADAS functions could therefore lead to a reduction in accidents of between 30% and 40%, with AVs beginning to have a significant impact in mature markets from 2023 onward. In the most advanced countries, such as Germany, premiums will decrease by as much as 40% between 2020 and 2030.

With the end of the statistical actuarial model also approaching, insurers will need to be acutely aware of the car technology evolution speed. The car without accident will be on the road long before the car without driver.

The 2016 edition of the UBI Global Study was launched last month; It covers the impact of ADAS on insurance premiums in details and with a market forecast up to 2030. You can download the free abstract here.

The Need for ‘Price-Driven Costing’

In 1973, I began my insurance career as a claims’ adjuster. We handled some of the first claims in the new NFIP Flood Program. There was chaos.

A year later, I was hired by Cumis Insurance to staff a new sales office in Baton Rouge,LA. The market hardened dramatically, capacity was limited and our office closed before we sold a policy. I learned about market cycles.

My next job was as an insurance producer. My job and the agency business were good. We were paid 25% commission on homeowners policies, there was no transparency (comparative rating didn’t exist in our part of the world) and the most exciting change was when Safeco allowed field men (yes, they were all men) to wear blue or buff-colored shirts in lieu of the traditional white.

During my first week at work, a colleague dropped an article titled “Marketing Myopia” on my desk and said, “read it.” The author was Theodore Levitt. The piece was then and still is a classic — and framed my thinking about an issue that has only grown in importance and must become  the future of insurance.

Levitt opened with an observation on the railroad industry, which declined because it defined itself incorrectly – “railroad-oriented instead of transportation oriented… product-oriented instead of customer-oriented.”

Levitt also mentioned a fundamental misunderstanding about the success of Henry Ford. “We habitually celebrate him for the wrong reasons: for his production genius. His real genius was marketing. We think he was able to cut his selling price and therefore sell millions of $500 cars because his invention of the assembly line had reduced the costs. Actually, he invented the assembly line because he had concluded that at $500 he could sell millions of cars. Mass production was the result, not the cause, of his low prices.”

From 1978 to 1981, I represented Fireman’s Fund/FAMEX in its GM dealers program. At that time, the No. 1 concern of General Motors and its dealers was that GM would gain 65% market share and that the government would then break GM into Cadillac, Buick, Oldsmobile, Pontiac, Chevrolet and GMC corporations. We all know how this played out.

In 1993, I opened my consulting practice focusing on CHANGE – its management and architecture. (“The best way to predict the future is to create it,” as Peter Drucker said.) I spoke to the leadership of a community bank and said that, although GM, IBM and Sears were the giants in their respective industries, “one of these three will ultimately go bankrupt.” The bankers rolled their eyes and laughed. We all know how this played out. (In my children’s lifetime, I may prove right on the other two.)

Later that same year, Drucker offered an op-ed in the Wall Street Journal, titled “The Five Deadly Business Sins.” It said, “The third deadly sin is cost-driven pricing. The only thing that works is price-driven costing. Most American and practically all European companies arrive at their prices by adding up costs and then putting a profit margin on top… their argument, ‘we have to recover our costs and make a profit.’

“This is true but irrelevant; customers do not see it as their job to ensure manufacturers profit. The only sound way to price is to start out with what the market is willing to pay.”

Levitt’s voice echoes his agreement from the “Marketing Myopia” article, when he says, “Our policy is to reduce the price, extend the operation and improve the article. You will notice the reduction of price comes first.” Drucker’s wisdom closed the circle that began with my reading of “Marketing Myopia.”

In 1994, I became the executive director of the Louisiana Managed Healthcare Association (LMHA) – the health maintenance organization (HMO) association. I quoted Drucker dozens of times as I attempted to explain the difference between the then-existing fee-for-service system and the new world of “capitation” and “managed care.” I was shouted down more than I was applauded.

That same year, a couple named Harry and Louise (in a TV ad campaign) defeated Bill and Hillary’s attempt to reform healthcare. Fast forward another 20 years and Obamacare is the law of the land. At its essence is managed care – a price-driven costing model. The market won’t go back to cost-driven pricing.

Two more observations from Drucker as your prepare for tomorrow — or choose to ignore it:

— “Because the purpose of business is to create a customer, the business enterprise has two and only two basic functions: marketing and innovation.”

Innovation is so necessary because customers are constantly changing. We must be defined and driven by clients.

–“There are now only three possible roads the financial services industry can take. The easiest, and usually most heavily traveled, is to keep doing what worked in the past. Going down this road means, however, steady decline….The second road – to be replaced, and probably fairly rapidly, by outside innovators – remains a possibility for today’s firms. But there is also a third and final road – to become innovators themselves and their own ‘creative destroyers.’”

Your future depends on more production but only at a price the market will pay. Your sustainability depends on innovating your processes to ensure profitable delivery whether your commission is hidden in the premium or disclosed or whether premiums are quoted net of commission.

Today, when I drive by a dealer, the genius of Drucker is reinforced. Look at a pickup truck on the lot. The window sticker shows the “cost-driven price.” The sign on the windshield celebrating a $12,000 discount is the price-driven cost.

If you want to sell a truck in today’s world, discounts are not optional!

The same is true for insurance.