Auto Insurance: Disruptive technology brings changes in the sector – Financial Express – 17th October 2018

The automotive insurance industry is being disrupted continuously by technology. The physical salesoriented
industry has fast-tracked to digital-only channels and now, with the introduction of Internet of
Things, Artificial Intelligence and Block chain has completely shaken up the sector while disrupting the
underlying business model itself. While all may seem to be well within the industry, large insurers are
struggling with challenges primarily in how to price risk; how to decrease claim exposure; and how to
fight unconventional competition.
Pricing risk
Insurers have priced risk based on the law of masses. This has worked at times and not so well at other
times, but insurance companies did not have a way to look at the customer beyond their age, number of
years behind the wheel, and location of car and driver. Now, by installing a simple telemetric device in
the car, insurers are able to collect and analyse data about driver behaviour and habits, vehicle
performance, predictive telemetric, and a whole lot more.
This data, along with new information on customer /car relationships has helped insurance companies to
hyper-personalize and contextualize risk protection for individuals, rather than a segment. Europe
and the US, being early adopters in usage-based insurance (UBI), were able to build on these business
insights to achieve greater value, while countries lagging in its adoption, such as in Asia, including India,
just recently initiated flexibility in product design so as to offer individual insurance products to
customers. This under-exploited market remains open to potentially enormous growth.
Telematics definitely is an incremental step towards better customer / product alignment by providing
atomic insights about both driver and car. Some insurers and new entrants have leapfrogged in
translating customers’ digital footprints before and after driving to their preferences and behaviour via
virtual channels.
Decreasing claims exposure
To reduce claim settlement time, automotive insurance customers now are empowered to self-settle the
claims by documenting the damage and filing for claims through smart devices. Insurers are now
focusing on being able to prevent claim, rather than processing it. As we move towards mass adoption of
connected car ecosystem, including fully or semi-autonomous driving, it raises critical questions on
insurers’ ability to define and assign liability.
Unconventional competition
Google and Amazon are quickly building an insurance portfolio. Both companies are working on building
technology solutions that will provide simplified, high-quality, transparent, and personalised vehicle
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insurance at a reasonable cost. These giants definitely have the technological edge to outpace existing
insurance power houses.
Start-ups, such as Jointly or In spool in P2P insurance and Snap sheet or Guild for claims processing, are
using AI-based, real-time risk profiling and disrupting the underlying insurance business processes from
underwriting to claims. In fact, these and other insurtech start-ups are redefining the new way of pricing
risk and processing claims for the insured.
It is evident that for large insurers it may not be possible to out-invest or out-innovate this competition.
Therefore, rather than building these proprietary disruptive systems on their own, insurers need to look
for innovative ways to partner with these tech giants or incorporate the new entrants into their business
strategy for inorganic growth.
(The writer, Arjun Ahlawat is director, client solutions, Aeris Communications)

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