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May 24, 2016

The rise of Connectedness

As connected cars leverage the Internet of Things and the smart capabilities of the industry become ever-more ubiquitous, insurance companies are under pressure to reassess, and ultimately reinvent, their existing business models. This isnt optional to thrive in the evolving auto insurance ecosystem, you must capitalize on these new channels for customer engagement, and you must seize the opportunity to transition from a transaction-oriented model to a value-based model.

Whats the context for this shift? Cars are becoming mobile devices, and consumers now expect the same degree of connectivity in their automobiles that they have everywhere else in their lives. The digitization of core auto components, with computer-controlled key functions such as engine parameters, has led to the development of smarter and intelligent cars that offer an array of connectivity options. For example, Ford is examining the potential to link driver health information to in-vehicle technologies, including lane-keeping assist and Blind Spot Information System. According to the Consumer Electronics Association, the market for companies looking to sell hardware and software to vehicle manufactures totals approximately $11.3 billion.

This is why many insurers have already started shifting their business models based on how the connected car is changing consumer expectations. In 2013 there were approximately 23 million cars already connected to the Internet, reports Statista, a number expanding exponentially each year. By 2020 this number will reach more than 250 million, according to Gartner.

Another reason why its imperative that insurers revamp traditional auto insurance business models has to do with the emergence of non-traditional competitors.For example, many auto manufacturers offer insurance at the point of sale, usually via partnerships with automakers such as Ford, Volkswagen and BMW. With the richness of data they have on their cars and the driving patterns of consumers, manufacturers are actually in a better place to insure drivers than insurance organizations.

Shift from Protection to Prevention
Telematics is just one stop in this evolutionary journey, but it is a game-changing technology. No longer used strictly for usage-based insurance, telematics connects you with your customer, transforming customer experience to a whole new level. This is spurring the insurance business model change from protection to prevention, reducing the possibility of accidents and proactively eliminating the need for claims.

You can use telematics to engage with your customer in different ways, such as delivering traffic or weather alerts to drivers before they set out on a trip, providing information that will help drivers improve fuel efficiency, or arranging a rental car or tow truck on the spot following an accident.

Youll be providing value while also getting the rich data you need to develop new products and services.

Prepare for Three Horizons
Its one thing to call for new auto insurance business models. But, realistically, how do you get there? A smart approach is to think of the connected car journey in terms of three horizons, each with implications for insurers, based on market maturity and mass adoption.

  • Driver Experience – Within the next two years, there will be expanding automobile connectedness and a deeper focus on improving the driver experience and adding more value to the driver. The claims cycle time will be reduced significantly with information available to adjusters from connected cars.
  • Driver Assistance –In two to five years, we will see cars becoming increasingly smart, with more capabilities to take action on behalf of drivers. Semi-autonomous features such as crash avoidance systems and auto-pilot will reduce accidents and lower premiums. We will see lower risk rates and fewer collisions. Technology failure will displace driver error as a major cause of accidents, shifting liability from driver to manufacturer.
  • Driverless –The third horizon, in five to 10 years, will see technology firms and auto manufacturers collaborating on self-driving cars. This evolution will spark the development of associated infrastructure, including technology that enables vehicle-to-vehicle and vehicle-to-city communication. Carriers will begin to offer coverage for the additional self-driving infrastructure, and there will be a shift in auto insurance from personal lines insurance to commercial lines.

Dont wait to see what your competitors are doing. Stay alongside the evolution, invest in technology, be part of the journey. Most important start determining an answer to the question of how your organization will help shape the reinvention of traditional insurance business models. Are you ready?

Reni is a solution manager at Tata Consultancy Services (TCS) Insurance Innovation Labs. He focuses on creating next generation solutions in the customer experience space. He has been instrumental in conceptualizing and creating futuristic solutions such as Mobile Telematics and Virtual Advisor. Reni has also led multiple architectural engagements for some of the largest transformation programs for prominent insurance companies.


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