The profound impact of technology, on humanity as well as industry, is both indeterminate yet equally inescapable. As individual consumers ourselves, it’s hard to think of an aspect of our lives that hasn’t been materially changed, for better or for worse, by digital tools and technologies, which feel normal and mainstream today, but which would have been the realm of dreamers just a few years ago.
It’s equally hard, if not impossible, to identify any industry or category that hasn’t had to adapt to new market dynamics, new competitive forces and new disruptive realities, all driven by data, digital and technology. From shifting customer behavior to channel fragmentation, digitization to business or operating model innovation, few if any industries have remained immune. Some may argue that the insurance sector has lagged others in confronting disruption or seeking to be the disruptor. But now, more than ever, insurers are facing a number of fundamental, if not existential, questions about the future. And central to these is telematics. The concept of telematics and the technology behind it is by no means new. In reality, however, its potential for many remains underexploited, but this is changing. The sector is facing a collision of forces, each of which in isolation may not be enough to catalyze significant change, but in concert are creating opportunity and risk in equal measure.
We no longer “go online”, we’re just “online”. Data quality, long a concern for insurers evaluating their telematics strategies, continues to stride ahead, with 4G connectivity reaching some of the most rural areas and talk of 5G rollout already dominating. Coupled with the incredible ubiquity of the smartphone and its ever-pervasive role in our lives, consumers have never been more connected to the world around them. In India, for instance, researchers forecast more than a billion smartphones will be sold in the country over the next five years. In Western Europe, smartphone penetration per capita has reached almost 70 percent. The prominence of these devices and their influence on our now increasingly app-based lives shows no sign of abating.
2. Growing expectations
Empowered consumers expect more from businesses than ever before. We’re no longer compared to our peers, but to whoever sets the benchmark for a great experience in our lives. If my airline can do this, why can’t you? If my grocery retailer can do this, why can’t you? Some attribute it to Amazon, others to Netflix, others to Uber. But whoever you credit, or blame, for your customers’ heightened definition of value and expectations of the experience of doing business with you, it’s inescapable. And ignoring it isn’t an option.
3. Shifting behaviors
Owning a car doesn’t necessarily hold the allure it once did, at least for members of younger generations. A combination of financial pressures improved urban public transport, environmental concerns, and the immediacy and flexibility offered by the sharing and gig economies are changing the automotive sector. Millennials, already the world’s largest demographic cohort, have greater freedoms than previous generations and are shunning the traditional path to car purchase and historical patterns of transport usage.
4. Is simple economics
The insurance sector’s reliance on age, occupation, postcode, and brand of car to serve as a proxy for risk is imprecise, to say the least. And it’s not just insurers that are finding themselves hamstrung by legacy profiling. Consumers, especially in their early driving years, are increasingly expressing frustration with carrying the cost burden of bad drivers, similar in socio-economic status, but potentially radically different in behavior.
5. The looming threat of automation
Myriad societal and regulatory questions are either unanswered or yet to be asked, but like it or not, automation is coming for insurers, with accounting and advisory leaders KPMG predicting the sector could shrink by as much as 70 percent by 2050 due to “autonomous vehicle technology, a rise in on-demand transportation and a shifting of liability to manufacturers”. Opportunity for the taking At first glance, this may seem a dystopian narrative for the insurance industry. These forces, however, are creating just as much, if not more, an opportunity for those insurers willing to embrace change and adapt. Consumers increasingly understand the value inherent in their personal data and that they can offer contextual information about their behavior with ease in exchange for tangible benefits from the businesses with whom they choose to share it.
Advances in connectivity, data reliability and the wide penetration of smartphones mean the traditional black box, with its associated cost and practicality issues, is no longer the only option for insurers and drivers seeking a fairer, more accurate approach to assessing risk and setting premiums. What’s more, app-based smartphone telematics is creating an opportunity to lift the motor insurance sector out of the margin-eroding, price-focused situation that aggregators have helped to create; to change the conversation with drivers from price to value, from savings to safety.
The message to insurers? Embrace the smartphone, for it’s more than just a phone. Stop looking at risk as something you manage, to something you can influence. Stop assessing who wants to drive, and start understanding how, when, where and why they really drive. And use this to find ways to become “sticky” by being a more valuable part of your customers’ lives, not just an annual mandatory purchase.
Find more valuable insights on how motor insurers must adapt to meet customer expectations in Raconteur’s special report, “Tech Revolution in Auto“, published in association with Amodo.