Tag Archives: driverless

Insurtech in P&C: It’s Not About the Tech

Insurers are acutely aware that a whole host of emerging technologies are poised to change the industry, in some cases dramatically. It is both exciting and scary for industry executives to contemplate the implications of driverless vehicles, artificial intelligence, the Internet of Things, wearables and many other important technologies. It is also easy to get wrapped up in the technology. What features do the latest wearables provide? What advanced tech capabilities are being built into vehicles today, and how soon will the age of driverless vehicles arrive? How should we assess the various AI-related technologies such as robotic process automation (RPA), chatbots, machine learning and a laundry list of others?

There is no question that understanding the technologies themselves is important, but, from an insurance point of view, it is not about the technology – it is about what the technologies mean for customers, risks and operations.

See also: Possibilities for AI in P&C Insurance  

SMA’s recently released research report, Emerging Tech in P&C: Insurer Strategies and Plans Through 2020, explores 13 key emerging technologies in depth. A survey of industry executives yields insights about insurer strategies, plans and investments for each technology, along with expectations on how far-reaching the impact on insurance may be.

All of these technologies are important in one way or another. The key is in understanding which areas of the business have the potential to leverage various technologies, and how rapidly (or slowly) the adoption of each technology is likely to occur. Assessing business area implications and potential use cases is straightforward, but determining adoption rates falls into the area of educated guesses. Nonetheless, it seems clear to many in the industry that AI, drones, the IoT and driverless vehicles are a few of the emerging technologies that will have the biggest impact on both personal and commercial lines insurers. Others that have received a great deal of press, such as blockchain and wearables, are also important, but, for these, there is less activity among insurers than for the others.

The timeframe question is beginning to take shape, as well. Drones are here and now. A high percentage of both personal and commercial lines insurers have either already deployed drones or are building strategies to use drones (for both inspections and claims). AI and the IoT also have many projects and investments underway. There are also many partnerships with insurtech startups that have solutions based on those technologies. Driverless/autonomous vehicles are expected to have a larger impact on the industry than any other technology, with premium levels predicted to fall dramatically. However, the technology progress, testing, laws, regulations and the adoption of vehicles with these capabilities faces a long ramp up over the next 10 to 20 years. The implications are enormous for the industry, and there is time and opportunity to build strategic plans and reorient the industry.

See also: P&C Core Systems: Beyond the First Wave  in

This blog just scratches the surface on emerging technologies and what they mean for P&C insurers. The bottom line is that all P&C insurers, across all lines, need to be actively following the developments and thinking about the implications for business strategy.

7 Wonders of the Driverless Future

Arthur C. Clarke, who knew a thing or two about futuristic technology, observed, “Any sufficiently advanced technology is indistinguishable from magic.” His observation certainly applies to driverless cars.

In a recent Forbes article, I made the case that strategists, policy makers, regulators and other stakeholders needed to exercise “patient urgency” in balancing the hope and fear inspired by driverless cars.

It is worth highlighting the hope—in the form of the seven huge societal benefits that driverless cars would deliver. It is a magical list.

1.  Reduce injuries and deaths

Americans were in more than 6 million police-reported car crashes in 2014. As a result, more than 2.3 million individuals suffered serious injuries, and 32,675 were killed. Worldwide, more than 50 million people are injured each year, and more than 1.2 million are killed. Globally, road traffic crashes are a leading cause of death among young people, and the main cause of death among those aged 15–29 years.

Human error caused more than 90% of those crashes, and, in recent years, accident and fatality rates have gone up—due in large part to distracted driving.

See Also: How to Picture the Future of Driverless

Driverless cars, which promise to see better and react faster than humans while never getting sleepy, drunk or distracted, offer the possibility of dramatically reducing driver error and the resultant human suffering.

Consider the relative magnitude of success: A 25% reduction in auto-accident-induced fatalities would save more lives than curing leukemia; a 75% reduction would save more lives than eliminating suicide.

2.  Lower accident-inflicted costs

The economic cost of driver error is also horrific. NHTSA estimated in 2010 that vehicle accidents inflicted $242 billion in economic costs (medical costs, property damage, lost productivity, legal and court costs, emergency service costs, insurance administration costs, congestion costs and workplace losses). The total cost rises to $836 billion when the impact to quality of life is taken into account. Globally, the World Health Organization estimates that 3% of GDP is lost to road traffic deaths and injuries.

These costs are inflicted not just on those involved but also on society as a whole. Each year, in the U.S., more than $218 billion is spent on auto insurance premiums. Motor vehicle accidents also make up one of the largest categories of disability and workman’s compensation claims. Worldwide, approximately $700 billion is spent on auto insurance.

3.  Reduce resource consumption

Driverless cars offer the hope of tremendous savings beyond the high price of accidents. Donald Shoup estimates that 30% of urban center traffic is due to drivers looking for parking. Driverless cars could deliver their passengers to their destination and drive away, eliminating the need to hunt for parking or walk back to the office.

Morgan Stanley estimates that avoiding congestion due to the hunt for parking could translate into $11 billion in fuel savings across the U.S. each year. This $11 billion is the smallest category of efficiency and accident cost avoidance delivered by this technology. By Morgan Stanley’s estimate, the total savings in the U.S. could reach $1.3 trillion.

4.  Reduce transportation cost

Driverless cars could enable driverless taxi services at prices much lower than individual car ownership or human-driven car services. KPMG, for example, estimates that such services could cost 48% less than the cost of individual car ownership on a per-mile basis—while also eliminating the high up-front cost and the time required for maintenance and regulatory compliance.

Similarly, in a study at Columbia University’s Earth Institute, Larry Burns and William Jordon estimate that driverless taxis would offer 90% savings over human-driven car services.

Considering that the average American household spends 19% of income on transportation (the largest category after housing), these cost savings will make a tangible difference in every American’s life.

5.  Enhance quality of life

The reduced cost of mobility coupled with the availability of high-quality, on-demand, point-to-point transportation would enhance freedom, independence and self-reliance for many seniors and people with disabilities. It would also reduce the substantial burden on the individual, family and community caregivers.

An estimated 8.4 million seniors in the U.S. cannot drive. As baby boomers age, the number of seniors is expected to grow quickly, effectively doubling from 43 million in 2012 to 82.3 million in 2040.

12% of the roughly 50 million Americans with disabilities report difficulty getting the transportation that they need, with the reason cited most often being no or limited public transportation.

Those who could otherwise drive would benefit, as well, through increased productivity and reduced stress as chauffeured passengers instead of drivers. The typical American commuter, for example, could use the 50-minute daily commute for in-car work and leisure rather than having to focus on driving. For America’s 120 million workers, that adds up to 6 billion minutes per day.

6.  Increase economic mobility

For the poor and economically disadvantaged, more affordable mobility would enable increased economic mobility by allowing faster and cheaper transportation to jobs in a wider geographical region—especially to those areas not well-served by public transportation.

longitudinal study conducted by Raj Chetty and Nathaniel Hendren at Harvard has shown that commuting time is the most important factor to the odds of escaping poverty. New York University’s Rudin Center for Transportation conducted a study that came to a similar conclusion.

Autonomous vehicles would not only give disadvantaged Americans access to better job opportunities, but also better access to schools, stores and services.

7.  Accelerate Vehicle Electrification

92% of American transportation is dependent on petroleum. Not only does burning this fuel create pollution, but it also makes America dependent on foreign suppliers.

Autonomous vehicles offer a remedy, because they will in most cases be electric. There is a virtuous cycle in which autonomous vehicles lead to vehicle sharing, which in turn leads to high vehicle utilization, favoring the low marginal cost of electric vehicles. This would not only cut emissions and pollution from vehicles but also dramatically cut petroleum dependency.

* * *

As I’ve previously acknowledged, a vast number of technical and implementation challenges have to be overcome before these societal benefits can be reaped. World-class engineers and scientists stand on either side of the question about whether these challenges can be adequately addressed.

Arthur C. Clarke was one of the believers. Clarke predicted in 1962 that “the automobile of the day-after-tomorrow will not be driven by its owner, but by itself.”

See Also: Lack of Enthusiasm for Driverless Cars?

More generally, Clarke also had something to say about seemingly impossible challenges. He observed, “The only way of discovering the limits of the possible is to venture a little way past them into the impossible.”

As to the arguments of world-class engineers and scientists, Clarke had this to offer:

When a distinguished but elderly scientist states that something is possible, he is almost certainly right. When he states that something is impossible, he is very probably wrong.

Let’s hope that the distinguished Arthur C. Clarke was right.

What I Learned at Google (Part 2)

We didn’t intend to write a series on the symposium that Insurance Thought Leadership hosted at Google last week for C-suite executives of major companies and for regulators, but I want to build on the wonderful post yesterday by Iowa Insurance Commissioner Nick Gerhart, about the insights he picked up there. For me, the symposium underscored a crucial point about the pace of innovation — how it can be faster than we expect at times but can also be slower.

And it’s crucial to get the timing right.

The faster-than-expected part comes from a partner at one of the major Silicon Valley venture capital firms, which we visited as part of the symposium. All these firms track where entrepreneurs are seeing possibilities and where investments are happening, and the partner said that in all of 2014 the firm had been visited by exactly zero people hoping to innovate in insurance. Yet, just in the fourth quarter of 2015, the firm met with 60 companies looking to innovate in insurance.

Even as innovation has surged in fintech, in general, investment in insurtech start-ups has been minimal, about 1% of the total for fintech. But that may now be changing. Start-ups may accelerate the disruption in insurance.

You’ve been warned.

The slower-than-expected (at least for me) part comes from a consensus about driverless cars at the symposium. The group discussions at all five tables reached almost identical conclusions: that fully driverless cars will be feasible technologically in roughly four years but that it will be 10 before they are a major presence on the road.

In Silicon Valley-speak, saying something is 10 years out means it verges on science fiction. After all, 10 years at a pace set by Moore’s Law means that you have some 30 times as much computing power available to you at no increase in cost — if you need that much more power to make something happen, it’s hard to know for sure that it works 10 years ahead of time.

But the concerns of the insurance C-suiters and the regulators were more prosaic. They felt that anyone who might be left behind because of driverless technology would kick up a fuss and that state governments, likely led by the legislatures, could intervene on behalf of constituents to slow the transition.

Perhaps insurance agents would fear the shift of auto insurance from a personal responsibility to a corporate one, shouldered by the manufacturers of the driverless cars or by operators of fleets of the cars — if no person is involved in driving, how can an agent sell personal lines insurance?

Maybe car dealers, already fighting a rear guard action to prevent direct sales by manufacturers to consumers, would fear further loss of their intermediary role — why would a fleet operator need a dealer to purchase of tens of thousands of cars?

Basically, think of anyone who might lose business because of driverless cars and the promised reduction in accidents — parking garages, emergency rooms, whatever — and you can see an obstacle. Not everyone will be explicit about their complaints. It’s hard for an operator of prisons or funeral homes to demand more business. But our discussion groups were sure that opposition would surface in lots of ways and that politicians, always running for reelection, would lend support.

In fact, some technical concerns about driverless cars have surfaced in recent months. It turns out that Google cars have more accidents than human drivers do, albeit only minor accidents thus far and, most importantly, not because of any fault by Google — careless people seem to bump into Google cars a lot at stoplights. Google also acknowledges that the cars would have caused at least some accidents if not for intervention by the highly trained humans sitting in the driver’s seat. So, the technology still has a ways to go.

The pace of technical progress has still been faster than I expected when Chunka Mui and I published Driverless Cars: Trillions Are Up for Grabs nearly three years ago, and we staked out what was then a very aggressive position. The federal government recently stepped on the gas, if you will, by announcing a plan to spend $4 billion on driverless technology over the next decade and to reduce regulatory hurdles for adoption. The rationale — which we have long predicted the government would have to adopt — is that 25,000 lives could have been saved last year on U.S. highways if a mature form of the technology had been in use.

For me, then, the fundamental question from our symposium is: How do you position yourself for a technology that may be wildly important, yet whose timing is uncertain?

Two thoughts:

–A line that carries considerable currency in Silicon Valley is: “Never confuse a clear view with a short distance.” Even if you’re sure that something will happen as part of the transition to autonomous vehicles, keep in mind the issue of timing.

–Then think big, start small and learn fast — a dictum that just happens to come from another book Chunka and I wrote, The New Killer Apps: How Large Companies Can Out-Innovate Start-UpsThat means you get in the game now, with as big a vision as you can conjure up for yourself or your company. Then you start experimenting to see what works and what doesn’t — while spending extremely little money. You make sure you can kill the experiments as soon as you gather the needed information — no pilot projects allowed, at least not in the early days, and certainly no grand plans to go to market. And you keep iterating until both you and the market are ready. Then you start cashing checks.

Actually, one more thought: Consider coming to the Global Insurance Symposium that Nick and the fine folks in Des Moines (my dad’s hometown) are putting on in late April. Nick is as forward-thinking a regulator as I’ve met, and there will be lots of people there who can help you on your journey, whether that involves driverless cars or something else entirely. I’ll be there….

Will You Own a Self-Driving Vehicle?

The introduction of self-driving vehicles (SDVs) poses many questions. Working for Zurich, I’m often asked about the insurance and liability implications: “What happens if my SDV is involved in an accident, and who pays?” Increasingly, I am facing a line of more technical and legal questioning. For example, “Who homologates the vehicle, approves its circulation, certifies that it complies to safety standards?” Or even, “Am I allowed to operate an SDV to run my morning errands?” I expect these questions to become more complex as we get closer to the reality of our purchasing our first SDVs.

As a strong supporter of public transport, I am keen to understand how the path to autonomy will influence urban buses, trams and the like. Will the trend for car clubs, and sharing in general, extend to SDVs, or will vehicles be mostly owned by individuals and fleet managers? And if SDVs do become a shared mode of transport, how will customers react to boarding a two-seater “autonomous pod,” left dirty by that nice gentleman who just stepped out?

No one has a crystal ball that can predict the potential legal, cultural and behavioral impact of SDVs, so it’s important that we experiment and learn — like the researchers at CityMobil2 are doing with a number of demonstrations across Europe. Zurich has just announced it will work with them and, we hope, other similar organizations.

Every big oak was once a small acorn.