Flying cars have captured the imagination of many for generations, with some predicting they would dominate the skylines of our cities by the eve of the second millennium. That did not happen. Driverless cars, on the other hand, seem to be closer to reality today. Or are they not?
The motor insurance industry is on the brink of a revolution – at least that is what we are being told.
Some have gone so far as to predict that by 2020, the motor insurance industry would slide into irrelevance as safer, emotionally-devoid driverless cars take over the roads, rendering motor insurance policies obsolete and relegating the act of driving to a mere hobby.
Others, perhaps more conservative predictions, see telematics, collision avoidance and driving assistance systems becoming standard vehicle parts, fundamentally reshaping the way car insurers underwrite this line of business.
Technology is not believed to be the only disruptive element. New entrants too, will change the status quo. Many point to Google which jolted the car insurance industry when it announced the launch of its aggregator service in the US earlier this year. The advent of aggregators will force motor insurance companies to rethink the way they do business, the thinking goes.
But to which extent do these new, much-discussed trends really affect motor insurers in Asia?
Self-driving cars rollout not as imminent as expected
Those who anticipate a complete overhaul of the motor insurance industry overnight might be in for a disappointment. It might be a while before driverless cars push human drivers into complete oblivion. Insurers by and large do not seem to view their rollout as imminent. While Mr Stuart Spencer, CEO Asia Pacific General Insurance at Zurich Insurance, said his company is monitoring the development of self-driving cars closely, nothing seems to indicate that insurers are expecting self-driving pods to hit the road en masse anytime soon.
Driving assistance systems gaining traction
Instead, Mr Frank Ellgring, Head of Pricing & Product Development International and of the International Knowledge Exchange Network Motor at ERGO International, sees driving assistance systems gaining increasing prominence in the coming years, with insurers more likely to integrate this technology in their product design.
“We are sure that the market will see new motor products, which will result in lower premium for clients who have collisions systems and driving assistance systems installed,” he said.
But it still might be a while before this technology makes a noticeable impact on the industry, according to Mr Andrew Byrne, Head of Auto Insurance, Asia at AIG.
“Passive and active vehicle safety devices such as collision avoidance systems will make an impact on collision claim frequency over the longer term, but for now, we are not seeing any major market impact,” he said. “Any change is likely to occur over a very extended period of time as the vehicle fleet gradually migrates to the newer vehicle types incorporating the technology.”
Besides, the adage according to which motor insurance policies will become cheaper, as collisions assistance systems lead to fewer accidents, might not stand the test of further scrutiny. “While collision frequency will likely decline, actual claim repair costs may rise due to the improving technology and sophistication of vehicles,” Mr Byrne said.
Telematics
Telematics is also a topic that has been extensively discussed in the industry. Hailed by insurers as a revolutionary technology that will allow for a fairer pricing of motor policies,telematics has also attracted a fair deal of criticism, and those concerned over privacy issues decry their Orwelliannature. However, the shift towards telematics-based insurance seems inexorable.
Mr Ellgring holds the view that telematics will eventually become a fixture of the motor insurance industry, leading in the process to new pricing models and tariffs.
“The client would no longer have to pay the premium for a certain period of time, but according to a certain mileage. When having exceeded this mileage limit, the client would have to pay another sum. Also, the driving behaviour could become a parameter for the premium,” he said.
Telematics has become increasingly prominent at Zurich and is a key strategic initiative for its general insurance business as a whole, Mr Spencer said. “Currently however, the technology is still in its early days and so we do not expect substantial changes to the way motor insurance is managed in the near future.”
The relatively high costs and the operational complexity involved in rolling out telematics technology has meant that insurers have yet to fully embrace the telematics paradigm, Mr Byrne said. But this could change soon, with the technology becoming an integral component of the motor insurance business sooner than expected.
“We are seeing costs decline and increasingly, telematics capability is being built in to new cars. AIG is investing in research in this in a few markets around the world and we expect it will become a part of the way we do provide future services. We will also see increasing use in a range of ways, not just limited to insurance pricing. There is an opportunity to enhance the value to consumers through additional services such as road safety advice,” Mr Byrne said.
But telematics might not be the smooth ride that everybody expects it to be, and its adoption will come with its own share of challenges, Mr Spencer said.
“This (the adoption of telematics) will present challenges to the industry in dealing with poorer quality risks and as liability for accidents begins to involve the telematics software and hardware designers involved in car manufacturing,” he said.
“The speed and extent of these changes will be largely influenced by regulators and cross-industry bodies and will vary from market to market.”
Aggregators mere disruptors?
The advent of aggregators has traditionally received mixed support among insurers. While some welcome the level of transparency that they bring about for customers, others have warned that aggregators, by focusing only on prices, provide too simplistic a view. It has been reported that a number of insurance providers in the US have declined to be featured in Google’s aggregator service when the technology giant launched its Google Compare product earlier this year for that very reason.
While aggregators can play a role in increasing visibility of insurance pricing, the downside is they tend to commoditise a product and can drive service quality down to the lowest level possible, Mr Byrne said.
“In the end consumers want a competitively priced product, but they also want to know that their claim will be met efficiently and fairly. To date, aggregators have not in my view, been the best forums for communicating the price and value equation of an insurance product,” he said.
But aggregators might have a silver lining, according to Mr Ellgring. They will entice companies to deliver greater levels of services, in hopes that customers look beyond the sole price factor when making a purchasing decision.
“For insurance companies, this development shows that it is even more important to establish and to maintain a brand that the clients can trust in. Offering services that competitors do not offer, for example a smart, efficient claims management, will lead the clients to choose a company and its products for other reasons than the price only.”
Regardless of whether aggregators are a positive development or not for the industry, their role remains limited and the great majority of purchasing decisions are still largely made through more traditional channels like agency distribution and to some degree telephone sales, Mr Byrne said.
“I think the influencing factors for this are that regulators have not yet engaged with digital signatures. Most still require printed documentation and consumers are also not yet fully comfortable with transacting car insurance online,” he said.
“The trend towards digital is clearly underway and I expect over the next 10 years the market will migrate that way. The speed of change is heavily influenced by wider factors such as the stage of development in the banking system and broader consumer trust of the insurance market.”
Detariffing a more immediate challenge
While there remains a great deal of uncertainty as to when all these technological developments will be embraced and to which extent they will impact the industry, more immediate changes and challenges of a very different nature loom for car insurers.
Detariffing is one of them. Malaysia and China are two markets that are in the midst of a transition from a tariff-based regime to a model where prices are determined by market forces.
“This has the potential to significantly alter the market dynamics in each of these countries and presents an opportunity for improved customer choice and experience,” Mr Byrne said.
But detariffing is a double-edged sword. Insurers, anxious to retain existing customers and to attract new ones, might become entangled in a price war that could prove unsustainable in the long run.
“It is critical for the industry and also the long-term best interests of consumers that these transitions are managed with care. It is important that insurers maintain a level of pricing discipline that ensures longer-term viability,” Mr Byrne said.
Fierce competition and low margins a hallmark of motor
Perhaps unsurprisingly, competition will continue to remain a defining feature of the motor insurance industry in Asia, and a perennial challenge that insurers will continue to grapple with for years to come.
Fierce competition and low margins have, in a way, become a hallmark of the sector. Motor insurers have had to contend with high combined ratios for years and most have come to approach the segment as a high volume business rather than a high-margin one.
Motor policies are also seen by many as a gateway to more profitable segments, so the competition for market share remains fierce. With products being fairly commoditised, the difference comes down to servicing levels, our panel of insurers said.
“Competition is of course the nature of our industry and in the end, those that deliver the right customer value proposition will be the ones that grow. We are investing a lot of our effort in ensuring consistent high-quality claim services as well as improving our sales and service delivery,” Mr Byrne said.
Ms Gaelle Olivier, CEO, General Insurance at AXA Asia, also holds the view that service is paramount and that the key to success is to adapt to clients evolving needs. “Overall in Asia, we see a move towards more and more transparency, and from a customer and distributor perspective, allowing for ease of interaction and easy to understand solutions becomes more and more critical,” she said.
Mr Ellgring agreed: “A challenge for insurance companies in Asia is always to be state-of the-art in terms of service and partnership with clients and distribution partners.” The response time to requests of agents should not exceed certain time limits and, in the area of claim management, clients should be helped out in a swift and adequate manner, he said by way of example.
“Customers are expecting insurance interactions to be more and more easy and fluid,” Ms Olivier said, adding that the company had invested in building a fully automated platform allowing customers and distributors to receive their policies on the spot and to renew them online.
Harnessing technology to improve service
“I think one of the key business challenges is around using technology to better deliver cost-efficient and quality service for our intermediaries and customers,” Mr Byrne said.
But the tug of war for market share and the tight margins that insurers operate on in this segment means that any material investment in technology will need to be weighed carefully.
“This requires significant investment and with the pressure on margins, this can be difficult to sustain in some markets,” Mr Byrne said.