Tag Archives: transportation as a service

New Era of Commercial Insurance

Despite a generally soft market for traditional P&C products, the fact that so many industries and the businesses within them are being reshaped by technology is creating opportunities (and more challenges). Consider insurers with personal and commercial auto. Pundits are predicting a rapid decline in personal auto premiums and questioning the viability of both personal and commercial auto due to the emergence of autonomous technologies and driverless vehicles, as well as the increasing use of alternative options (ride-sharing, public transportation, etc.).

Finding alternative growth strategies is “top of mind” for CEOs.  Opportunities can be captured from the change within commercial and specialty insurance. New risks, new markets, new customers and the demand for new products and services may fill the gaps for those who are prepared.

Our new research, A New Age of Insurance: Growth Opportunities for Commercial and Specialty Insurance at a Time of Market Disruption, highlights how changing trends in demographics, customer behaviors, technology, data and market boundaries are creating a dramatic shift from traditional commercial and specialty products to the new, post-digital age products redefining the market of the future.

See also: Insurtechs Are Pushing for Transparency

Growth Opportunities

New technologies, demographics, behaviors and more will fuel the growth of new businesses and industries over the next 10 years. Commercial and specialty insurance provides a critical role to these businesses and the economy — protecting them from failure by assuming the risks inherent in their transformation.

Industry statistics for the “traditional” commercial marketplace don’t yet reflect the potential growth from these new markets. The Insurance Information Institute expects overall personal and commercial exposures to increase between 4% and 4.5% in 2017 but cautioned that continued soft rates in commercial lines could cause overall P&C premium growth to lag behind economic growth.

But a diverse group of customers will increasingly create narrow segments that will demand niche, personalized products and services. Many do not fit neatly within pre-defined categories of risk and products for insur­ance, creating opportunities for new products and services.

Small and medium businesses are at the forefront of this change and at the center of business creation, business transformation and growth in the economy.

  • By 2020, more than 60% of small businesses in the U.S. will be owned by millennials and Gen Xers — two groups that prefer to do as much as possible digitally. Furthermore, their views, behaviors and expectations are different than those of previous generations and will be influenced by their personal digital experiences.
  • The sharing/gig/on-demand economy is an example of the significant digitally enabled changes in people’s behaviors and expectations that are redefining the nature of work, business models and risk profiles.
  • The rapid emergence of technologies and the explosion of data are combining to create a magnified impact. Technology and data are making it easier and more profitable to reach, underwrite and service commercial and specialty market segments. In particular, insurers can narrow and specialize various segments into new niches. In addition, the combination of technology and data is disrupting other industries, changing existing business models and creating businesses and risks that need new types of insurance.
  • New products can be deployed on demand, and industry boundaries are blurring. Traditional insurance or new forms of insurance may be embedded in the purchase of products and services.

Insurtech is re-shaping this new digital world and disrupting the traditional insurance value chain for commercial and specialty insurance, leading to specialty protection for a new era of business. Consider insurtech startups like Embroker, Next Insurance, Ask Kodiak, CoverWallet, Splice and others. Not being left behind, traditional insurers are creating innovative business models for commercial and specialty insurance, like Berkshire Hathaway with biBERK for direct to small business owners; Hiscox, which offers small business insurance (SBI) products directly from its website; or American Family, which invested in AssureStart, now part of Homesite, a direct writer of SBI.

The Domino Effect

We all likely played with dominoes in our childhood, setting them up in a row and seeing how we could orchestrate a chain reaction. Now, as adults, we are seeing and playing with dominoes at a much higher level. Every business has been or likely will be affected by a domino effect.

What is different in today’s business era, as opposed to even a decade ago, is that disruption in one industry has a much broader ripple effect that disrupts the risk landscape of multiple other industries and creates additional risks. We are compelled to watch the chains created from inside and outside of insurance. Recognizing that this domino effect occurs is critical to developing appropriate new product plans that align to these shifts.

Just consider the following disrupted industries and then think about the disrupters and their casualties: taxis and ridesharing (Lyft, Uber), movie rentals (Blockbuster) and streaming video (NetFlix), traditional retail (Sears and Macy’s) and online retail, enterprise systems (Siebel, Oracle) and cloud platforms (Salesforce and Workday), and book stores (Borders) and Amazon. Consider the continuing impact of Amazon, with the announcement about acquiring Whole Foods and the significant drop in stock prices for traditional grocers. Many analysts noted that this is a game changer with massive innovative opportunities.

The transportation industry is at the front end of a massive domino-toppling event. A report from RethinkX, The Disruption of Transportation and the Collapse of the Internal-Combustion Vehicle and Oil Industries, says that by 2030 (within 10 years of regulatory approval of autonomous vehicles (AVs)), 95% of U.S. passenger miles traveled will be served by on-demand autonomous electric vehicles owned by fleets, not individuals, in a new business model called “transportation-as-a-service” (TaaS). The TaaS disruption will have enormous implications across the automotive industry, but also many other industries, including public transportation, oil, auto repair shops and gas stations. The result is that not just one industry could be disrupted … many could be affected by just one domino … autonomous vehicles. Auto insurance is in this chain of disruption.

See also: Leveraging AI in Commercial Insurance  

And commercial insurance, because it is used by all businesses to provide risk protection, is also in the chain of all those businesses affected – a decline in number of businesses, decline in risk products needed and decline in revenue. The domino effect will decimate traditional business, product and revenue models, while creating growth opportunities for those bold enough to begin preparing for it today with different risk products.

Transformation + Creativity = Opportunity

Opportunity in insurance starts with transformation. New technologies will be enablers on the path to innovative ideas. As the new age of insurance unfolds, insurers must recommit to their business transformation journey and avoid falling into an operational trap or resorting to traditional thinking. In this changing insurance market, new competitors don’t play by the rules of the past. Insurers need to be a part of rewriting the rules for the future, because there is less risk when you write the new rules. One of those rules is diversification. Diversification is about building new products, exploring new markets and taking new risks. The cost of ignoring this can be brutal. Insurers that can see the change and opportunity for commercial and specialty lines will set themselves apart from those that do not.

For a greater in-depth look at the implications of commercial insurance shifts, be sure to downloadA New Age of Insurance: Growth Opportunities for Commercial and Specialty Insurance at a Time of Market Disruption.

When Will the Driverless Car Arrive?

When Chris Urmson talks about driverless cars, everyone should listen. This has been true throughout his career, but it is especially true now.

Few have had better vantage points on the state of the art and the practical business and engineering challenges of building driverless cars. Urmson has been at the forefront for more than a decade, first as a leading researcher at CMU, then as longtime director of Google’s self-driving car (SDC) program and now as CEO of a driverless car dream team at Aurora Innovation.

Urmson’s recent “Perspectives on Self-Driving Cars” lecture at Carnegie Mellon was particularly interesting because he has had time to absorb the lessons from his long tenure at Google and translate those into his next moves at Aurora. He was also in a thoughtful space at his alma mater, surrounded by mentors, colleagues and students. And, it is early enough in his new startup’s journey that he seemed truly in “perspective” rather than “pitch” mode.

The entire presentation is worth watching. Here are six takeaways:

1. There is a lot more chaos on the road than most recognize.

Much of the carnage due to vehicle accidents is easy to measure. In 2015, in just the U.S., there were 35,092 killed and 2.4 million injured in 6.3 million police-reported vehicle accidents. Urmson estimates, however, that the real accident rate is really between two and 10 times greater.
Over more than two million test miles during his Google tenure, Google’s SDCs were involved in about 25 accidents. Most were not severe enough to warrant a regular police report (they were reported to the California DMV). The accidents mostly looked like this: “Self-driving car does something reasonable. Comes to a stop. Human crashes into it.” Fender bender results.
While we talk a lot about fatalities or police-reported accidents, Urmson said, “there is a lot of property damage and loss that can be cleaned up relatively easily” with driverless technology.
2. Human intent is the fundamental challenge for driverless cars.
The choices made by driverless cars are critically dependent on understanding and matching the expectations of human drivers. This includes both humans in operational control of the cars themselves and human drivers of other cars. For Urmson, the difficulty in doing this is “the heart of the problem” going forward.
To illustrate the “human factors” challenge, Urmson dissected three high-profile accidents. (He cautioned that, in the case of the Uber and Tesla crashes, he had no inside information and was piecing together what probably happened based on public information.)

Google Car Crashes With Bus; Santa Clara Transportation Authority

In the only accident where Google’s SDC was partially at fault, Google’s car was partially blocking the lane of a bus behind it (due to sand bags in its own lane). The car had to decide whether to wait for the bus to pass or merge fully into the lane. The car predicted that the remaining space in the bus’s lane was too narrow and that the bus driver would have to stop. The bus driver looked at the situation and thought “I can make it,” and didn’t stop. The car went. The bus did, too. Crunch.

Uber’s Arizona Rollover

Uber Driverless Car Crashes In Tempe, AZ

The Uber SDC was in the leftmost lane of three lanes. The traffic in the two lanes to its right were stopped due to congested traffic. The Uber car’s lane was clear, so it continued to move at a good pace.

A human driver wanted to turn left across the three lanes. The turning car pulled out in front of the cars in the two stopped lanes. The driver probably could not see across the blocked lanes to the Uber car’s lane and, given the stopped traffic, expected that whatever might be driving down that lane would be moving slower. It pulled into the Uber car’s lane to make the turn, and the result was a sideways parked car.

See also: Who Is Leading in Driverless Cars?  

Tesla’s Deadly Florida Crash

Tesla Car After Fatal Crash in Florida

The driver had been using Tesla’s Autopilot for a long time, and he trusted it—despite Tesla saying, “Don’t trust it.” Tesla user manuals told drivers to keep their hands on the wheel, eyes in front, etc. The vehicle was expecting that the driver was paying attention and would act as the safety check. The driver thought that Autopilot worked well enough on its own. A big truck pulled in front of the car. Autopilot did not see it. The driver did not intervene. Fatal crash.

Tesla, to its credit, has made modifications to improve the car’s understanding about whether the driver is paying attention. To Urmson, however, the crash highlights the fundamental limitation of relying on human attentiveness as the safety mechanism against car inadequacies.

3. Incremental driver assistance systems will not evolve into driverless cars.

Urmson characterized “one of the big open debates” in the driverless car world as between Tesla’s (and other automakers’) vs. Google’s approach. The former’s approach is “let’s just keep on making incremental systems and, one day, we’ll turn around and have a self-driving car.” The latter is “No, no, these are two distinct problems. We need to apply different technologies.”

Urmson is still “fundamentally in the Google camp.” He believes there is a discrete step in the design space when you have to turn your back on human intervention and trust the car will not have anyone to take control. The incremental approach, he argues, will guide developers down a selection of technologies that will limit the ability to bridge over to fully driverless capabilities.

4. Don’t let the “Trolley Car Problem” make the perfect into the enemy of the great.

The “trolley car problem” is a thought experiment that asks how driverless cars should handle no-win, life-threatening scenarios—such as when the only possible choices are between killing the car’s passenger or an innocent bystander. Some argue that driverless cars should not be allowed to make such decisions.

Urmson, on the other hand, described this as an interesting philosophical problem that should not be driving the question of whether to bring the technology to market. To let it do so would be “to let the perfect be the enemy of the great.”

Urmson offered a two-fold pragmatic approach to this ethical dilemma. First, cars should never get into such situations. “If you got there, you’ve screwed up.”  Driverless cars should be conservative, safety-first drivers that can anticipate and avoid such situations. “If you’re paying attention, they don’t just surprise and pop out at you,” he said. Second, if the eventuality arose, a car’s response should be predetermined and explicit. Tell consumers what to expect and let them make the choice. For example, tell consumers that the car will prefer the safety of pedestrians and will put passengers at risk to protect pedestrians. Such an explicit choice is better than what occurs with human drivers, Urmson argues, who react instinctually because there is not enough time to make any judgment at all.

5. The “mad rush” is justified.

Urmson reminisced about the early days when he would talk to automakers and tier 1 suppliers about the Google program and he “literally got laughed at.”  A lot has changed in the last five years, and many of those skeptics have since invested billions in competing approaches.

Urmson points to the interaction between automation, environmental standards, electric vehicles and ride sharing as the driving forces behind the rush toward driverless. (Read more about this virtuous cycle.) Is it justified? He thinks so, and points to one simple equation to support his position:

3 Trillion VMT * $0.10 per mile = $300B per year

In 2016, vehicles in the U.S. traveled about 3.2 trillion miles. If you could bring technology to bear to reduce the cost or increase the quality of those miles and charge 10 cents per mile, that would add up to $300 billion in annual revenue—just in the U.S.

This equation, he points out, is driving the market infatuation with Transportation as a Service (TaaS) business models. The leading contenders in the emerging space, Uber, Lyft and Didi, have a combined market valuation of about $110 billion—roughly equal to the market value of GM, Ford and Chrysler. Urmson predicts that one of these clusters will see its market value double in the next four years. The race is to see who reaps this increased value.

See also: 10 Questions That Reveal AI’s Limits  

6. Deployment will happen “relatively quickly.”

To the inevitable question of “when,” Urmson is very optimistic.  He predicts that self-driving car services will be available in certain communities within the next five years.

You won’t get them everywhere. You certainly are not going to get them in incredibly challenging weather or incredibly challenging cultural regions. But, you’ll see neighborhoods and communities where you’ll be able to call a car, get in it, and it will take you where you want to go.

(Based on recent Waymo announcements, Phoenix seems a likely candidate.)

Then, over the next 20 years, Urmson believes we’ll see a large portion of the transportation infrastructure move over to automation.

Urmson concluded his presentation by calling it an exciting time for roboticists. “It’s a pretty damn good time to be alive. We’re seeing fundamental transformations to the structure of labor and the structure transportation. To be a part of that and have a chance to be involved in it is exciting.”