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Will Technology Kill Auto Insurance?

The auto insurance industry has been experimenting with technology and tools that are completely changing the way we think about cars.

Self-driving vehicles, ride-sharing and vehicles that include their own insurance in the sticker price are all recent innovations — innovations whose long-term effects are not yet known.

With the rise of autonomous vehicles and ride-sharing came questions about liability and its related coverage: Who will insure self-driving cars? Who is liable in a ride-sharing accident scenario? As vehicle fleets replace individual ownership, who should carry the coverage necessary to pay medical bills, repair costs and other losses in case of a crash?

The changes on the horizon have prompted some commentators, like Deutsche Bank’s Joshua Shanker, to predict that today’s auto insurance industry simply won’t exist in 20 years.

Is the demise of auto insurance imminent? Is it likely? Here, we explore the pressures on traditional auto insurance and the ways the field may shift in the next one to two decades.

Self-Driving Cars: Who Will Insure Them?

Self-driving cars are predicted to change the driving habits of entire nations — and to significantly reduce the cost of auto insurance. A 2015 study by Metromile and Ferenstein Wire estimated that self-driving vehicles would save their owners nearly $1,000 a year on insurance premiums on average, according to Gregory Ferenstein.

The study was based in part on data showing that, as of 2015, none of Google’s self-driving vehicles had been in an accident caused by the technology, only by human error, reported Adrienne LaFrance at The Atlantic. Since then, there have been notable instances of tech errors leading to accidents, including the March 2018 death of a pedestrian. More on that in a minute.

Still, many commentators have drawn the same conclusion from the data: Prevented accidents mean prevented claims, which will reduce premiums. Even big name investors like Warren Buffett have made such predictions with regard to self-driving vehicles, CNBC’s Elizabeth Gurdus reports.

See also: Industry 4.0: What It Means for Insurance  

The Reality on the Ground

Yet the reality may not be so easy to achieve. For one thing, self-driving cars have yet to be tested in the same wide range of conditions human drivers face daily, says Peter Hancock, a professor of psychology and engineering at the University of Central Florida. Seeing how these cars handle bad roads, inclement weather and similar challenges is essential to understanding whether they’ll really replace human drivers — and how to insure them if they do.

In 2015, Volvo CEO Håkan Samuelsson said that Volvo would accept “full liability” for any losses occurring when a Volvo vehicle was in full autonomous mode, indicating a future in which liability coverage for self-driving vehicles is a question of product liability, not driver behavior.

Yet, to date, other automakers haven’t rushed to join Volvo in making a similar promise. While Google and Mercedes have self-insured, as a rule “auto manufacturers are not that keen on taking on the insurance risk,” says Rick Huckstep at the Digital Insurer. Automakers have spent billions of dollars on developing automated technologies, and “they didn’t do this to then have to carry 100% liability for whatever happens on the road.”

Revising Timelines

Even if self-driving cars adopt a commercial liability or product liability approach to coverage, thus eliminating the need for individual drivers’ coverage, a 10- to 15-year timeline may still be ambitious, says Simon Walker, group chief executive at First Central Group. The technology, while ever more widely tested, is not yet commonplace.

Determining regulatory, licensing and liability questions will likewise take years; attempts to start that process now have met with uncertainties because the tech isn’t in common use. Customers will need to gain confidence in autonomous vehicles, and their driver-required cars will have to age their way onto the scrap heap.

All this is unlikely to happen in just 10 years, or even in 20. And with 10 to 20 years, auto insurers have time to adapt. Some have already begun, in fact. Julia Kollewe at the Guardian cites Adrian Flux, a U.K. insurer, which in 2016 announced what it called the first-ever auto insurance policy for driverless vehicles. The policy covers not only the conventional situations other policies address, but also autonomous-vehicle-specific topics like software updates, satellite or navigation system failure and loss or damage from hacking.

If this U.K. company can do it, says Julia Eddington at the Zebra, so can U.S. companies, although they may face more complexity due to the overlapping world of state and federal regulations. As of mid-2018, however, 29 states had enacted driverless vehicle liability laws, according to the National Conference of State Legislatures, which could pave the way for faster adaptation by existing auto insurers.

Improved Safety Features: Are Crash-Proof Cars Possible?

Self-driving cars aren’t the only way that technology may end the need for auto accident coverage. Safety technology is improving, as well, and Volvo’s promise to cover liability for its cars while in autonomous mode isn’t the only goal the automaker has set to change the vehicle liability landscape.

In 2008, Volvo announced an ambitious plan: to create a crash-proof vehicle that would result in zero injuries or deaths, and to do it by 2020. In 2013, according to Viknesh Vijayenthiran at Motor Authority, and again in 2016, Volvo announced its intention to stay on track to create its injury- and death-free vehicles by 2020.

Volvo still has a little more than a year to reach this goal, and its statistics indicate the company is on the right track. Volvo won a 2018 Which? Award in the U.K. for “the company’s solid safety record that put it ahead of other short-listed candidates.”

Awards and strong statistics are evidence that Volvo is moving in the right direction when it comes to safety, but until this technology is perfected, insurance coverage remains a necessity — and completely autonomous driving technology still has a long way to go.

A Car and Its Coverage: A Package Deal?

Tesla is also betting on the safety of its technological advances, and in a way that presents an additional challenge to traditional insurance companies: by including auto insurance coverage in the sticker price of their vehicles.

Tesla is experimenting with selling “insurance and maintenance included” vehicles in Asia, according to Business Insider’s Danielle Muoio. The price for insurance and maintenance incorporates Tesla’s data about the car’s safety features, including its autopilot system. By including the insurance price in the car, Tesla says, the company believes it offers a better deal to consumers, because many auto insurance companies don’t account for the autopilot system in the same way Tesla does.

Tesla may have a point. “If you’re hoping to shave down your premiums, buying an automated vehicle might not be the right move,” Shift Insurance head of business development Raphael Locsin tells Entrepreneur. However, some companies do consider certain other driver assistance features, like electronic stability, when calculating discounts.

Insurance companies’ hesitation may be prudent at the moment. A March 2018 Tesla crash with the autopilot turned on proved fatal for the driver, according to Jack Stewart at Wired.

Selling vehicles, autonomous or otherwise, with the insurance included in the sales price offers a hybrid approach between purchasing coverage from traditional auto insurers and placing the burden on automakers to cover their vehicles as consumer products. While Tesla has gambled on the approach, it remains the only automaker to do so; even the products-liability model has had more buy-in from the makers of self-driving vehicles and their technology.

“Insurance included” models seem the least likely of the self-driving insurance options to threaten the traditional auto insurance industry in the next two decades. Yet they indicate a willingness of companies to take risks to try new models, which are worth noticing.

What to Expect in the Near Future

Self-driving vehicles piloted by technology that prevents accidents is a powerful vision of the future. It provides a sense of excitement and hope.

It also provides challenges to traditional auto insurance companies, many of which are already struggling with auto insurance premiums in a world where many people have eliminated vehicles from their lifestyles. For a $220 billion industry that supports more than a quarter million jobs, the threat is significant, says Patrick Lin at Forbes.

Yet technology’s death knell for auto insurance may not be as close as it appears.

Driver involvement in vehicle operation is likely to be a necessity for many more years, and drivers will need insurance as long as they must take the wheel. Human error will continue to be a factor in accidents. And demand for insurance against theft, acts of nature and technological glitches will persist even in a world where cars do their own driving.

How Small Insurers Can Grow

Imagine for a minute that a new competitor started calling on your customers and offering the same—or better—product, coverage or services for much less cost. Are your relationships strong enough that your customers would ignore the prospect of an offering of better, faster, cheaper? Certainly, some would at least be inclined to explore the offer, would they not?

No need to imagine this scenario; it’s the new reality. And in this new reality, highlighted by insurtech startups, software incubators and service accelerators, small to medium-sized insurers are going to be more challenged than ever to keep up with the extraordinary changes taking place in the industry, all while trying to achieve growth in their organizations.

See also: Innovation: ‘Where Do We Start?’  

It’s no secret that smaller insurers are much more sensitive to loss of business, swings in expense and loss of knowledge-based staff. This makes small insurance operations vulnerable to carriers or competing services that are working with new insurance technologies to forge new products, services and business models. In fact, a new survey of 400 global executives by Forbes Insights and Gap International, “Challenge or Be Challenged: How to Succeed in Today’s Business Environment,” revealed that 57% of business leaders across a variety of vertical markets named startups and new technologies as their biggest competitors, while 70% say they are “extremely concerned” or “somewhat concerned” as to whether their company will still be relevant and competitive in two years.

What does this mean for small insurer operations?

Clearly, ignoring the changes taking place doesn’t mitigate the risks down the road unless you have a micro-monopoly in a service segment. Texas recently saw the closure of a fairly large public insurance pool that couldn’t navigate the current.

So, what options are there for the small insurer? Maybe there’s safety in numbers. Merger, acquisition, strategic partnerships? It’s certainly been a successful approach for many small insurers around the country, like Beta Fund in California. It’s hard to say what would work for you.

Then, is combining the only option?

Well, leaders of established companies, large or small, might worry less about being disrupted by a startup if they focused more on organic growth, says Pontish Yeramyan, founder and CEO of Gap International. “When you’re connected to organic growth and your passion is about growth, then you’re busy innovating and being in front of the marketplace, rather than being victimized by change,” Yeramyan said in a recent Forbes report.

This means investments in modern, affordable technologies and R&D, rather than looking outward for companies that might want to merge or be acquired.

Having an eye on organic growth means continuous improvements, whether by development of your staff, new products, service enhancements or innovating your business model. It also means keeping an eye on strategic vision, adopting the most appropriate technologies and staffing with the right skillsets.

The Forbes/Gap report also revealed that our new demanding and shifting business environment requires a change in how leaders think and act, namely, making innovation a part of the working institution, starting at the executive level and cascading into the entire organization. Small insurers can make this modification much more easily than can their behemoth brothers.

“An organization’s ability to change and innovate quickly is a key competitive advantage,” Yeramyan says.

See also: Insurers Are Catching the Innovation Wave  

Technology is certainly an enabler in effecting change; done right, it enables insurers to experience the hallmark of organic growth, expanding their market share and reach even further. Insurers such as Diamond Insurance Group and Utah Business Insurance, both leading regional providers of insurance coverage, understand this first-hand. Both companies implemented a cloud-based insurance software system to enable a variety of insurance processes, including policy, underwriting, billing and claims integration for compliance reporting. And by focusing on improvements in their internal abilities, both companies report that they are able to deliver greater value to their external customers. For Diamond, these changes, coupled with their hard work, have resulted in a 20% increase in revenue in just the first quarter this year.

How ready are you?

How the Customer Experience Is Shifting

“Companies that offer consistently best-in-class customer experiences tend to grow faster and more profitably” – McKinsey

If you’ve been in the insurance business for any length of time, no one has to tell you that times are changing.

Thanks to the ever-increasing popularity of the sharing economy, consumers are re-thinking the traditional agent-policyholder relationship.

Any new thinking regarding ways to make insurance more convenient and affordable always leads to the notion of working directly with online resources.

This scenario was true with the advent of the internet and is seeing its second wave in the face of various marketplace innovations — including the sharing economy.

Customer Experience is Changing: Insurance Industry

Historically, the insurance industry has been highly regulated, with strict underwriting requirements and tightly guarded claim adjustment policies. So you may be asking how would an industry such as this even begin to follow the unconventional rules of sharing economy?

Let’s go look!

Making Lemonade out of Lemons

A ground-breaking insurtech startup, Lemonade, has changed the rules and is attempting to modify the image of the insurance industry forever. Lemonade has certainly ignited the discussion.

Currently licensed to sell personal insurance in New York, Lemonade plans to expand and set a standard in the insurance industry. According to Fortune, the startup Lemonade was founded by Daniel Schreiber and Shai Wininger and is loosely based on the principles of successful sharing economy companies such as Uber and Airbnb.

See also: 4 Mandates for Agents in Sharing Economy  

Lemonade aims to sell insurance policies online to individuals who become a member of the peer-to-peer company.

It goes something like this…

You can join the online community at Lemonade and pay your monthly premiums just like you would to your traditional insurance agent/company. However, the premiums are pooled together by members of the group for the payout of claims.

Sharing Economy Benefits to Insurance Consumers

Because consumers don’t have the time or patience to wait for days or weeks to start a new insurance policy, the ability to get instant coverage with the click of a button on a mobile phone app is highly attractive. It offers consumers the ability to be insured immediately.

Here are a few more self-described benefits of the new peer-to-peer model:

  • A startup like Lemonade doesn’t have anything to gain by denying claims, so the odds of a fast and fair settlement increase.
  • A reduction in fraud and much lower operating costs keep premiums low.
  • Monthly fees are low (as low as $35/month for homeowner’s insurance, $5/month for renter’s insurance)
  • Customers get a more personal consumer experience with peers instead of dealing with large insurance companies, which helps rebuild the trust factor in purchasing insurance.
  • Monthly premium money is considered “peer money,” and leftover funds from underwriting profits at the end of a term are donated to a cause, chosen by the peer members.

This is by no means a promotion of Lemonade specifically, just an acknowledgment that “the times they are a-changin’.”

And this is a good thing.

Customer Experience is Changing: Not Feeling the Love

There is no question that some consumers have a less-than-glowing opinion about insurance companies.

Many don’t like the idea of having to pay premiums to large and often impersonal firms. This consumer grievance is by no means limited to insurance carriers (I’m looking at you too, finance industry).

If there should be a rate increase or a claim procedure gets complicated, the consumer/insurance company relationship doesn’t get better. The trust levels go down, right along with customer satisfaction.

The goal of the sharing economy is not only to give the consumer additional options but to provide a better, more technologically friendly, customer experience.

The goal is to produce better feelings toward having to pay insurance premiums.

Many carriers fail to realize that speed of claims resolution is just as important to consumers as professionalism and courtesy. And, with the all the innovations within the sharing economy that are premised on mobile technology, consumers are ready for a change.

And that change is going mobile.

Customer Experience Is Changing (Finally)

Schreiber stated that he was pleasantly surprised at how many large reinsurers were interested in providing support and seed money to fund the start-up. Schreiber stated, “Instead of being antagonistic, the insurance industry has taken a more ‘We’ve been waiting for you’ approach.”

See also: Sharing Economy: The Concept of Trust  

As for this trend catching on, more than 90% of consumers who participate in sharing economy ventures would endorse or recommend the company or service they have recently used, according to Vision Critical.

According to Forbes, “the sharing economy excels at customer experience, and that is what inspires customer love and loyalty.”

This new world of customer services involves choice and a seamless mobile experience. Simple as that.

As the demand for more convenient, affordable goods and services will only increase, it’s clear that consumers are sending a loud and clear message of support…even in the insurance industry.

Customer experience into the future will involve speed and ease of service. This, as we have seen, is premised entirely on mobile technology and innovative business models.

Insurtech vs. Legacy Insurance Carriers

Combining the resources of one of the world’s largest TPA firms with one of the world’s largest sharing economy platforms will result in true innovation within the insurance industry during a time when most carriers continue to operate in a legacy manner. Forbes, December 8, 2016

The writer was describing the announcement last week that Crawford will acquire 85% of the equity in my company, WeGoLook, which I believe will be the precursor both for other mergers and for other types of deals that will drive innovation through a merger of the gig economy and the insurance industry.

Let me explain.

Traditional Supply Chain Disruption

Simply put, the traditional supply chain is being disrupted. Hugely.

Digital technology and innovation have altered the traditional supply landscape in a number of ways. Technology has decentralized and democratized the supply chain, removing the need for traditional intermediaries. This digitization has resulted in the rise of gig economy platforms, which can use mobile technology to organize cost-efficient labor in a connected supply chain ecosystem.

For a long time, insurance carriers have tacitly acknowledged the need to adjust business models and consumer delivery processes. The time has come.

The WeGoLook-Crawford partnership is only the beginning.

Customer Experience Is Changing

Forbes contributor Steve Olenski noted that “the [WeGoLook-Crawford] merger is making the customer experience even better than before by adding key benefits for insurance company customers.”

These advantages include a more streamlined claims process, the addition of flexible workers to supplement field staff and powerful mobile technology.

See also: The Sharing Economy and Accountability  

It goes without saying that the younger generations love mobile. When it comes to business-to-consumer interactions, mobile is becoming even more important than traditional communication pipelines.

Simply put, the customer experience is now one of on-demand. WeGoLook, and other gig economy platforms, are premised on on-demand asset delivery through mobile technology.

The Workforce Is Changing

The world is becoming more freelance. By 2020, one study predicts that 50% of the U.S. workforce will be independent contractors. This has significant implications that move beyond the insurance industry itself.

WeGoLook and the gig economy are using technology to redesign work process flows for enterprise clients. This, combined with the ability to dispatch on-demand workers who possess the proper skill-sets, helps to augment and supplement existing, full-time workforces.

This augmentation can be indefinite, or during times of peak demand.

Perhaps even more importantly, gig workers can easily act as field personnel for platforms that don’t yet have a nationwide footprint.

For insurance carriers, this results in a much faster and cost-effective way of providing inspections, or performing low-complexity tasks.

Gig companies including WeGoLook are more than just vendors; we easily become part of traditional business processes through partnerships and acquisitions.

What happened last week, was a perfect example of this integration in its infancy.

Expediting Claims Processes

The Crawford-WeGoLook acquisition solves one of the most persistent challenges in the insurance industry: how to get claims processed faster.

Today, insurance inspections may take anywhere from a few hours to a few weeks to schedule and execute.

With the acquisition of WeGoLook, Crawford is fast-tracking the entire process and streamlining the claim process workflow by leveraging “gig economy” workers, already in the field”

  • Crawford will be able to send out claim requests in real-time, tapping into WeGoLook’s workforce of 30,000 Lookers, and growing.
  • Crawford will be able to assign experienced agents to high-priority tasks, allowing Lookers to handle simple inspection requests for a fraction of the cost.
  • Crawford will experience extensive data capture efficiencies. All inspections sent through WeGoLook will be funneled through a secure, mobile platform. No more paper trails, and no confusion over what an inspection does or does not entail.
  • Crawford can leverage WeGoLook’s custom inspections capabilities. For special requests, such as needing an agent who is proficient in a specific language, Crawford can simply include the request in the order to WeGoLook’s workforce.
  • Crawford can quickly scale its workforce up or down to match demand for inspections.

Indeed, according to Crawford’s press release, this strategic acquisition will enable “Crawford to revolutionize, automate and expedite the claim handling process by utilizing a large mobile workforce for automotive and property inspections.”

See also: A Mental Framework for InsurTech  

These are exciting times for the insurance industry, with innovative technology ingraining itself in this centuries-old industry. The above thoughts are simply my observations, and time will certainly tell the full story.

But I can assure you, the marriage between the insurance industry and gig economy will be a lengthy and prosperous one.

How Diversity Can Stoke Innovation

In an age of increasing technological disruption to business around the world, almost every organization is looking for ways to keep on top of innovation. A classic Forbes study found workforce diversity and inclusion to be a key driver of internal innovation, as alternative perspectives challenge assumptions and lead to new approaches. Numerous other studies have had similar findings. Diversity has also been proven to be good for business, with a recent McKinsey study finding that gender-diverse companies are 15% more likely to outperform their competitors, with ethnically diverse companies 35% more likely to do better.

However, simply hiring people from different backgrounds — or setting quotas for the number of women or people of different ethnic backgrounds — is not enough to benefit the company. If your company culture ends up treating all employees the same way, they will soon become assimilated into your existing working patterns, and the benefits of their diverse perspectives can be lost.

How do you encourage the continuance of the alternative approaches that diverse teams bring while sustaining the advantages of diversity for the long term? Getting the balance right is increasingly a challenge — efforts to support diversity, if implemented poorly, can seem at best patronizing, and at worst insulting and discriminatory.

In Depth

The work world is changing fast. The concept of a job for life has disappeared, with employees more likely to switch jobs than ever before. Generations are shifting as baby boomers retire and millennials seek rewarding work. The rise of the internet has made the world — and our workforce — more globalized than ever. New technologies continue to disrupt and threaten further disruption to a broad range of industries. Emerging markets are growing fast, and their rising businesses could overtake previous industry-leaders in the developed world.

As the business world has become more global, so too has the value of workforce diversity increasingly been recognized; a broader mixture of employees has demonstrated to have multiple benefits in terms of productivity, innovation and adaptability in an ever-shifting economy. But how can we maximize the advantages of a diverse workforce?

The different types of diversity

The Society for Human Resource Management, a global professional organization operating in 140 countries, notes that while most people will think of gender and ethnicity when they think of diversity, there are plenty of other traits that should be factored in. They can be split into two types: visible diversity traits and invisible diversity traits, with some falling into either category depending on the individual.

  • Visible: Skin colour, gender, age, body size/type, physical abilities, physical traits
  • Possibly invisible: ethnicity, religion, socio-economic status, marital status
  • Invisible: Sexual orientation, native-born or non-native, nationality, parental status, level in organization, education, work background, culture, functional specialty, beliefs, values, habits, personality, military experience, geographic location

Each of these diversity traits can give their owners alternative perspectives that can be valuable for business — but some approaches to diversity and inclusiveness have sought to downplay rather than acknowledge differences.

The importance of differences

As the concept of diversity has gained traction over the last couple of decades, many companies around the world have made concerted efforts to avoid discrimination and embrace the hiring and promotion of people from less traditional backgrounds. Much of the language has been around emphasizing similarities, rather than differences — trying to create harmony by encouraging employees to see what they have in common.

However, the benefits of diversity come from the very differences this approach can seek to downplay. “As hard as getting the mix in the workforce is, most companies have gotten used to the idea that we need the mix,” says Andrés Tapia, author of The Inclusion Paradox: The Obama Era and the Transformation of Global Diversity (and the former chief diversity officer at Aon Hewitt), “but they have not been ready for making the mix work, or how difficult it is. Because the more diverse a workforce is, the more difficult it is to manage … It’s not just about people looking differently, but thinking and behaving differently.”

Diversity of thought

This is why we are increasingly seeing an emphasis on encouraging and accepting diversity of thought as the most important aspect of diversity initiatives, rather than the traditional focus on simply opening up the workplace to people from different genders, ethnicities and disabilities.

“Diversity is the mix, and inclusion is making the mix work,” Tapia says. By adopting an inclusive approach to diversity, where cross-cultural differences as well as similarities are celebrated, the advantages of a diverse team can be sustained over the long haul.

Building trust

Of course, encouraging employees to express their different opinions presents another challenge: building the trust needed for them to feel comfortable to speak up. The key is to encourage acceptance of and respect for differences in approach, which can be incredibly complex and nuanced depending on the mix of visible and invisible diversity traits that make up your team’s background.

Rewarding ideas, praising suggestions and cross-cultural team-building exercises can all play a part, and there are too many approaches to fostering inclusiveness and acceptance of diversity to list here (see further reading, below, for a few overviews).

However, absolutely vital to success is ensuring there are clear feedback channels to help shift approaches to encouraging inclusiveness of diversity if any employees feel them to be inappropriate. Because, while it’s unlikely you’ll ever be as excruciatingly bad as Michael Scott of The Office in his attempts to celebrate diversity, the delight of appreciating and encouraging diversity of thought is that you can be sure that you won’t be able to please everyone all the time. The key is to ensure that you acknowledge and learn from this and use any inadvertent missteps to progress. The biggest benefit of workplace diversity, after all, is in learning from and adapting to alternative viewpoints.

Talking Points

“Employing people from different backgrounds and who have various skills, viewpoints and personalities will help you to spot opportunities, anticipate problems and come up with original solutions before your competitors do.” – Richard Branson, founder, Virgin Group

“Ideas from women, people of color, LGBTs and Generation Ys are less likely to win the endorsement they need to go forward, because 56% of leaders don’t value ideas they don’t personally see a need for… the data strongly suggest that homogeneity stifles innovation.” – Center for Talent and Innovation

“Multi-cultural teams produce different results depending on the level of inclusiveness. When a company has diverse talents but leaders ignore or suppress cultural difference, the cultural differences become obstacles to performance… When a company has diverse talents and leaders acknowledge and support cultural difference, the cultural difference becomes an asset” – Park Gyone-me, CEO, Aon Hewitt Korea

“The world is evolving at an unparalleled pace… The most successful leaders will be those who possess cross-cultural competence, a deep understanding of various peoples and a sincere appreciation for diversity.” – Donna Shalala, President, University of Miami

This article originally appeared on TheOneBrief.com, Aon’s weekly guide to the most important issues affecting business, the economy and people’s lives in the world today.”

Further Reading