The changing face of motor insurance to a technology driven industry
The insurance landscape in South Africa is evolving. As the rest of the world moves towards a consumer centric industry, South Africa has begun it’s own journey towards achieving this.
The insurance industry is poised over the coming decade to use technology as never before in all aspects of its business from signing up policyholders to administering claims. This is one of the findings of the Future Now Report, released by the Innovation Group.
Changing landscape
Jonathan Holden, Managing Executive of Insurance at the Innovation Group, pointed out that the South African motor insurance industry is in the midst of a fundamental change in the way in which it evaluates risk, prices policies and interacts with its customers. Technology and data are set to come together to redefine the insurer-customer relationship.
“One of the by-products of the digital revolution has been the shift in the balance of power from industry to consumer centric. In the past the consumer buying experience was weighted more in favour of brands and brokers, whereas now technology is acting as something of a leveller,” says Holden.
A driver of technology is that consumers are able to research and discuss their insurance. This poses questions of whether or not the insurer will fade into the background in future and how new customers will be brought in?
The report showed that technology in automotive design and fleet management are likely to result in fewer accidents.
“Global Innovation Group data shows that around a quarter, 27%, of claims currently result in a total loss. This is likely to change over the next decade, with a much starker divide between minor and catastrophic claims. Insurers will need to start investing in premium care systems for more serious accidents, while ensuring they take the hassle out of minor claims such as panel damage to guarantee the claims experience is as quick and painless as possible for customers,” says Holden.
Technology drivers
Education, more traffic calming in built up areas and on-board technology in modern cars is simultaneously going to bring down the speeds at which accidents occur, thereby reducing the number of serious collisions. Holden pointed out that this trend will only exacerbate the current shift from replace to repair, with smart repairs becoming more and more frequent.
“An equally important innovation comes with telematics, which is set to enable more personalised policies that better reflect the habits and socioeconomic factors of drivers. Telematics is set to become a significant disruptor to the South African motor insurance market over the next decade, and is likely to very soon impact pricing methods across the industry. We will see technology account for 40% or more of policies over the next ten years, but the real value will be derived from the data telematics generates,” says Holden.
Big Data will enable insurers to redesign the insurance product while facilitating better risk selection leading to better deals for some drivers, but worse deals for others. The ultimate goal is a completely bespoke policy, and possibly a market of one.
“The ultimate use of Big Data is in the customisation of policies. However, few insurers in South Africa are currently doing more than toying with the notion. With Big Data it becomes relatively easy to tailor a policy to the unique circumstances of an individual. Some insurers do not have the rating tools to do so or do not have the means to embed telematics across their portfolios,” says Holden.
The long road ahead
Much still needs to happen to facilitate this new era of motor insurance. For instance, the report notes currently there is no agreed standard for telematics data across the industry. Therefore, a customer cannot necessarily easily transfer data from one insurer to another. This results in an incomplete picture of their customers’ behaviour. How insurers treat their data in the future and how much value they can extract from it will come to shape their ability to remain competitive.
“It cannot be emphasised enough that the data that innovations like telematics produces is a game changer, but one that unfortunately the basic insurance product has not really changed in line with the evolving distribution channels. I am convinced that over the next decade it is going to force insurers to engage with customers on a semi-continuous basis at the very least,” says Holden.
Due to all these implications, the legacy system in South Africa of having a fragmented approach to data accessibility; between insurers, traffic authorities and vehicle manufacturers - must start to give way to a one-stop proposition in which all data relative to vehicle and driver, past and present, is accessible.
“I believe this would be a valuable first step that would enable insurers to evolve to the next level in which each policy is individualised and relationship-based rather than the current standardised approach,” says Holden.
Important initiatives
Besides technology, the South African Insurance Association (SAIA) has several important initiatives, under the umbrella of its Sustainable Motor Strategy, aimed at making motor insurance profitable for underwriters and both affordable and sustainable for consumers and business. “The SAIA initiatives include lobbying for regulations permitting certified alternative , but legal, parts be used throughout the extended warranty period; and looking at the entire accident value chain from towing companies to motor body repairers and parts to eliminate wastage and corruption,” says Holden.
He adds that price comparison websites (PCWs) are also likely to be a game changer in South Africa, though it appears locally the PCW model is being adapted more to suit the intermediary than the consumer.
Ultimately, it is technology that offers the best chance for motor insurers to adjust their business models to take the industry into the future.
Editor’s Thoughts:
South Africa is playing catch up when it comes to adapting to global trends. It will be interesting to see what the role of the broker will be in this technology driven industry. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].
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