Technology will revolutionise short-term insurance product offerings
Technology has improved in leaps and bounds since cellular telephones first arrived on our shores. The short-term insurance industry is at the forefront of adapting this technology for use in innovative motor vehicle insurance products. Their objective is
Although many insurance brokers and consumers are sceptical about the technology it is only a matter of time before the entire insured motor pool has this it installed. And telematics is just the beginning. Motor vehicle manufacturers are already installing self-park, auto-brake, adaptive cruise control and lane drifting functionality that will go a long way to preventing vehicle accidents. There is no doubt that roads, motor vehicles and drivers will “look” very different two decades from today. “Telematics is already here,” says Karen Miller, Executive General Manager of Underwriting at Mutual & Federal. She told the audience at the group’s recent Broker Engagement Forum that such technologies helped insurers to price product and manage exposures more accurately.
A few years until the Knight Rider phenomenon
The 1982 Knight Rider television series captured the imagination of many South African television viewers… It featured an advanced – and usually indestructible – Pontiac Trans Am nicknamed KITT (Knight Industries Two Thousand). KITT – thanks to its advanced on-board computer technology – had a personality all of its own. Most importantly – KITT could drive itself!
It will not be long before vehicle manufacturers include self-drive technology as standard equipment. Scientists at US-based search engine company Google have already released a prototype “Google Car” that uses Google Maps technology to navigate the country’s roads. The vehicle has clocked up more than 100000 miles and is licensed to drive in the state of Nevada. A world “occupied” by such smart cars will affect short-term motor insurance underwriting and product as the risk moves from driver error to computer error. “We will have to price risks differently and price product differently to meet these changing risks,” notes Miller.
There are other trends that might exhibit in the motor space going forward. Rising fuel, vehicle licensing and vehicle maintenance costs could lead to pooled vehicle ownership. Insurers and underwriters will have to alter the legal basis of the motor vehicle insurance policy to accommodate such changes.
Rampant consumerism spawns demand for new covers
One of the major trends playing out worldwide is a shift to consumerism. Living standards are improving and the economists estimate there will be more than a billion middle income consumers throughout Africa by 2020. South Africa’s financial services regulators are already hard at work to ensure that the product on offer to these consumers meet the strictest standards. And insurers are hard at work to ensure that their product baskets meet consumer needs.
Miller believes rampant consumerism could create demand for “device only” insurance. It makes sense given the average consumer owns multiple devices under the iPad, iPod, smart phone and laptop computer headings. Aside from the replacement values these devices contain valuable data! So how does the short-term industry adapt to tackle this? “Data is becoming increasingly important in the insurance space – we have the opportunity to insure data and there will be a big demand from both consumers and business in the future, in terms of product options and opportunities,” she says.
The abundant data works for insurers too. Data helps insurers to select risk and price it more accurately, which means the consumer pays the right price for the level of risk. “It also helps us connect various sources of data in an automated way, to give better services to the client across underwriting and sales,” says Miller. Insurers such as Mutual & Federal will be looking at opportunities in the data privacy and identity theft areas. These covers will evolve from the standard “anti-phishing” policy wording today to protect the future insured against “theft of DNA”.
Alternative energy, climate change and science fiction
Insurers are watching developments in the alternative energy space with interest. “We want to support sustainable energy and alternative energy forms,” says Miller. Climate changes linked to greenhouse gas emissions have a direct impact on the insurance industry due to weather-related catastrophe claims. During 2011 the world suffered $400 billion in economic losses due to extreme weather events, well above the six-year average of some $89 billion. Insurers expect numerous opportunities as some $500 billion in new investment capital flows into the alternative energy market over the next few years.
There are numerous other opportunities linked to technology, particularly in the fields of biotech and nanotech. Future insurers may have to offer liability for body part cover and GM crop insurance, for example. Self-healing plastics and electronic circuits could change the insurance landscape too – as minor damage that used to result in a claim is repaired by the insured’s vehicle or appliance. It is also possible that the cost of replacement vehicle parts will be massively reduced thanks to improvements in 3D printing technology. Imagine if an insurer could reconstitute the parts required for a motor vehicle repair using such a device!
Technology requires that insurers stay on their toes. Miller concludes that insurers will have to move from their current question set – such as what product features to develop and how to get better channel coverage – to future-oriented questions. The insurer of tomorrow will ask: What products are appropriate given where technology is going, how should our intermediation model adapt to accommodate the intermediary of the future, and how do we manage catastrophe exposure prudently and appropriately.
Editor’s thoughts: A number of intermediaries and short-term motor insurance clients are uncomfortable with today’s telematics insurance offerings. As motor manufacturers adopt the latest technologies we may reach a point where telematics and self-drive are pre-installed in new vehicles. Do you think concerns over “Big Brother” telematics devices are misplaced? Please add your comment below, or send it to [email protected]
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