How Digital Disruption will Reshape the Motor Insurance Industry Graeme Adams, Jessie Wang, Kai Wu and Calise Liu
1 Motor industry 2 Motor insurance needs of tomorrow 3 Future insurance business models
1.THE MOTOR INDUSTRY Today & in the Future
Vehicle technology development is accelerating Accident protection Accident prevention 1971 ABS 1991 GPS 2003 Radar based detection Including adaptive cruise control and emergency braking - Toyota 2010+ Telematics Sim cards equipped in new prestige vehicles 2016 Autonomous -Full autonomous hardware available in production car - Tesla 1981 SRS Airbags 1995 Electronic Stability Control 2005 Camera based detection -Pedestrian and animal detection -Night vision 2014Semi- Autonomous -Lane & Blind Spot Assist -Fatigue detection
5 levels of autonomous cars I Drive We Drive It Drives
The motor industry is now more complex Vehicle Ownership Technology Alliances software platforms and mapping Car Maker Dynamics New Car Makers and Brands
But change requires time Time for adoption Time to impact portfolios
Are we ready for it drives? Cars Major brands aiming for 2020 People Adoption takes time Regulation Over 200 laws to change in Australia Not ready Ready
Future of the Motor Industry Safer, but more complex cars Less private car ownership More shared cars mobility plans Less likely to crash, more expensive to repair More efficient transport More complexity and choice - Vehicles and brands - Ownership - Liability - Vehicle design and manufacture Manufactures will take a bigger role in mobility & insurance Branding will remain important (to cut through complexity)
2.THE INSURANCE NEEDS OF TOMORROW Insuring Mobility
Insurance is constantly changing Insurance ntermediaries Direct Challengers (Youi, Banks) Peer-to-peer insurance InsurTech : Telematics, Pay as you drive, & Other Digital Disruptions Insuring Mobility Facilitated in new ways Broker Platforms Insurance Online Price optimisation On demand mobility and insurance through apps (Trov) New Insurance Risk Carriers Car Brands and Tech Companies Past Present Future
We will insure our Mobility Experience Mobility Plan $ $ $ $ $ $ $ Pay as (how) you drive Ultimate On- Demand Insurance (Level 5) Lifestyle Interruption Insurance
Split of Liability Car makers Car Owner Weather Windscreen Manufacturers Software developers Hardware developers Collision Theft Cyber events
Count ('000) The number of vehicles will flatten but car usage will continue to grow 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Projected Number of Vehicles Car Numbers Population Increase in the proportion of shared cars Car Usage 2016 2020 2025 2030 2035 2040 2045 2050 2055 Personal driven cars Personal autonomous cars Shared driven cars Increase in car usage will exceed population growth Shared autonomous cars
Cost Per Policy ($) Frequency (%) Size ($) Collision cost per policy will fall from current levels 14 12 10 8 6 4 2 0 Collision Risk (2015$) 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Frequency (LHS) Size (RHS) 90% of road accidents caused by human error 450 400 350 300 250 200 150 100 50 0 Collision Cost Per Policy (2015$) 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055
GWP ($b) The passenger vehicle premium pool will continue to increase for another decade (excludes CTP) 12 10 8 6 4 2 Premium Pool (2015$) Personal Cars Shared Cars 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 Level 1 Level 2 Level 3 Level 4 Level 5 Premium will be split between car owners (personal lines) and auto makers (product liability) Premium Pool (2055 vs 2015) 19% claim frequency x 200% average claim size x 165% population x 118% car usage = 74% premium pool
3. INSURANCE BUSINESS MODELS What will the insurance business look like?
Current Insurance Business Model Distributors Suppliers Customers Sales Finance IT Systems Claims Third Party Insurer
Emerging digital models Enabled through trust Economic behaviours Technology How will new sharing models ensure financial viability? How will the regulators view this model? Users as co-creators
Increased competition in the future Customer Customer Customer Customer Insurer Car Provider Social community Car Provider (as insurer and customer) Insurer Insurer Existing Emerging Potential (it drives)
Will car providers become insurers? Insurers (Existing) High barriers for new entrants Diversification benefit with other insurance products Insurance knowledge e.g. pricing, underwriting and claims management Movement towards mutuality Decrease in number of personal owned vehicles Less scale advantage Car Providers (Future) Car providers will have data and customer relationships Options to be the insurer or the distributor Whole-of-life customer experience Shift from personal injury to product liability Enhance the brand value Reputation risk
Future Insurance Business Model (Car Providers) Customers Car Providers Sales Finance IT Systems Claims Captive or outsourced
Winners Losers Commercial Insurers Commercial Products Cyber Risk Personal Lines Insurers (and Commercial Lines?) Decreased risk volumes & Premiums Most Customers Greater switching power Lower friction costs On-Demand Insurance? Lower premiums for better risks Worst Risk Customers Better understanding of risk profiles Agile & Innovative Insurers Capitalise on niche products New platforms Customised the customer experience Traditional Insurers Insurers who do not invest will struggle to keep products contemporary
Motor insurers death is greatly exaggerated $ The Motor Industry is rapidly changing to provide computers on wheels Insurance products and relationships will change to reflect customer mobility needs Traditional insurers will respond, not die