Post on 27-Jun-2020
transcript
An EXL whitepaper
EXL Digital Intelligence center
Innovations opportunities in the age of disruption for P&C insurers
Robots, SmartHomes and
Ride Shares
1 © 2016 ExlService Holdings, Inc.
[ Robots, Smart Homes and Ride Shares ]
• The emerging “Internet of Things” uses
sensors and wireless networks to create
a web of connected devices in homes,
highways, offices and factories.
• The connected homes of the future will
use sensors to control climate, monitor
the health of appliances and could even
tell people when they’re consuming more
than their target calorie intake. However,
the threat hackers pose to smart homes
will open new areas of risk evaluation.
• Aerial drones could be deployed in new
ways such as assessing damages to
hundreds of acres of land faster and
more safely than inspections are currently
completed.
• Today, ride-sharing services require
underwriting flexibility as drivers and
passengers reconfigure their travel habits.
• In the future, software will control driving
functions to make cars safer, which will
reduce premium revenues.
This all sounds like science fiction now,
but consider the youngest insurance
customers. Fifteen years from today,
they will be the buyers. Having grown up
accustomed to their smartphones helping
them do pretty
much everything, they will expect to use
robots and technology to “simplify” day-
to-day activities. How should property and
casualty insurers adapt to these changes?
This paper aims to provide a roadmap.
The age of disruption has
arrived for property and
casualty insurers.
Consider the impact of
technological advances
and economic evolutions
that touch the P&C
industry:
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Technology defines the future of automotive insurance Questions are cropping up for property
and casualty insurers: What will driverless
cars do to our business? How deep should
we dive into telematics and “pay-per-
use” insurance? Shouldn’t we be thinking
about ancillary products enabled by new
technologies?
Here’s a look at the questions on insurers’
minds and some potential answers.
What should we do about driverless cars?Headlines out of Detroit shout ominous
warnings that autonomous vehicles
will decimate the auto industry within
a generation, but it’s not just the auto
companies that need to be concerned.
While human error is implicated in nine-
tenths1 of all car crashes, Google’s
autonomous cars have logged more
than a million miles2 with only a few
minor accidents. Driverless cars have the
potential to dramatically reduce human
error – and a large chunk of the auto-
premium revenue those errors generate.
Early reports on autonomous cars also
project a liability quagmire, as the lack of a
driver obscures the cause of an accident.
It’s likely that blame for these increasingly
rare incidents will accrue to auto
manufacturers and their ecosystem. In its
‘Self Driving Vehicle Revolution’, McKinsey
predicts that during the consumer adoption
of autonomous cars, insurers will shift from
covering individuals to covering liabilities
arising out of technical failures, similar to
insurance for cruise lines and shipping
companies.3
U.S. law has a robust product-liability
regimen with a long track record of
adapting to new technologies. There’s
no reason to suspect automated cars
will pose a significant product-liability
challenge, according to an in-depth study
by the respected Brookings Institution 4 5.
With more than 2 million people involved
in car accidents6 every year, the annual
cost of roadway crashes reached $212
billion in 20127 . If McKinsey’s prediction of
autonomous cars reducing the accident
rate by 90%8 holds true, legislators are
likely to be convinced that driverless cars
are a safer option with billions of dollars of
positive impact to the economy.
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Autonomous Vehicle Roadmap: 2015-20309
2015
• Google launches first short-range fully autonomous vehicle service in California-small scale pilot, limited to Google employees.
• Daimler and Honda announce major strategic initiatives and major investments and rapidly bring vechicles capable of full autonomy to the market.
• Car2Go announces a roadmap for autonomy in their car fleet.
• Automotive industry recognizes the implications of fully autonomous vehicles.
2016
• Google announces that their short range, limited-speed fully autonomous vehicle fleet will be built by Ford, Magna or others.
• China launches a major program to develop and deploy and deploy shared autonomous vehicles for local mobility.
• Google expands their short range autonomous vehicle service pilot to another US city that sees little rain and no snow and starts their first overseas fleet.
• Transformative potential benefits of autonomous vehicles are recognized. There is a bitter debate about the destruction of jobs.
2017
• Autonomous long haul highway trucks start testing in the US, Europe or Japan.
• Rental car companies launch their own autonomous mobility initiative.
• Google vehicles are now capable of driving in snow on pre-mapped routes.
• Automotive suppliers announce their own autonomous vehicles or special-purpose autonomous machines.
• Major road infrastructure projects are downsized because autonomous and connected vehicle technology have reduced the expectations on future transportation demands.
• Google moves their autonomous vehicle operations into a subsidiary which then merges with Uber and starts to roll out local autonomous vehicle mobility services in many more US cities.
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Autonomous Vehicle Roadmap: 2015-2030 (contd.)9
2018
• Car2Go starts to add autonomous vehicles to their fleet.
• The Google subsidiary/ Uber merger rolls out autonomous vehicles internationally.
• Experience with autonomous vehicles shows that they are indeed much safer than the average human driver. People feel safe and comfortable in fully autonomous vehicles and there is no longer any question of user acceptance.
2019
• Autonomous vehicles now operate in over 50 cities worldwide.
• Rapid growth for autonomous trucks on specific routes. In many countries, truck drivers protest, but this can only delay their adoption slightly.
• The first high-end consumer cars capable of fully autonomous driving on a large part of the national road network become available.
2020
• The first countries introduce laws that prohibit bullying of autonomous vehicles (e.g. jumping in front of it to make it stop).
• Bleak outlook for automobile companies. Consumers use shared autonomous vehicle services. The auto industry has its “Kodak moment”.
and beyond...
• The cost for autonomous vehicle hardware has come down to USD 1500.
• Mass transit companies increasingly rely on autonomous vehicles for transport.
• Insurance rates favor operating cars in fully autonomous mode and prompt many people to stop driving on their own.
• Most companies require that business trips with rental cars must occur in fully autonomous mode (for safety and productivity reasons).
• Car ownership has declined dramatically, Only 20% of the US population still own a car (200 cars for 1000 people, today: 439 cars for 1000 people). 90% of all trips now happen in fully autonomous mode. Traffic accidents and fatalities have declined dramatically.
5 © 2016 ExlService Holdings, Inc.
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Progressive, a leading proponent of
telematics, analyzed billions of driver miles
and concluded that “actual driving behavior
is the leading variable in predicting a
driver’s risk, carrying more than twice the
predictive power of any other factor,”10
such as age, gender, and car type.
That means every automotive insurer can
tap the potential of telematics, but they
must be mindful of a couple key issues.
First, the idea of tracking a driver’s every
move unnerves some people, so insurers
must be prepared to assuage privacy
concerns.
Second, companies typically offer
discounts to encourage premium holders
to sign up for their telematics programs.
If telematics become widely embraced,
insurance companies may suffer a short-
term hit to cash flow while waiting for the
benefits of telematics to accrue.
Executives have already started to push
their actuarial and product development
teams to align products to the needs of this
changing market and consumer behavior.
Some insurers have already launched
usage-based insurance (UBI), albeit in a
restricted fashion. What remains to be
seen is how consumers react to products
like UBI and how insurers can protect
themselves against fraud.
The providers of services to insurers
that enable the entire ecosystem of the
insurance world will have to change their
Should we dive deeper into telematics and ‘Usage-Based Insurance’?Telematics uses technology to track
everything a car does: where it goes, how
fast it gets there and how many miles it
travels. This allows insurers to bill people
for how they drive, rather than where they
appear on an actuarial table.
Early telematics technology required
the user to install a sensor in their car,
a major roadblock for those who aren’t
mechanically inclined. Today, however,
smartphone technology can do everything
the old sensors could do. This includes
simple GPS tracking and using proximity
sensors, as well as complex health
monitoring systems like blood pressure
and electrocardiogram (ECG) monitoring.
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offerings and alignment to match the
insurer’s needs. Some of the first movers
are already taking the initial steps to make
that happen. For example, CGI and Baseline
Telematics recently announced joining of
forces to integrate Baseline’s UBI platform
with CGI’s rating engine.
How can technology enable ancillary revenue streams?A study conducted by Ernst & Young
suggests that cost and policy benefits are
the key drivers for customers to switch
their insurance carrier.
Figure 1: Top Reasons for Closing or Replacing an Insurance Policy
Source: Ernst & Young11
0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 70 800 10 20 30 40 50 60
Customer loyalty benefits
Did not like the way claim was handled
Brand reputation
Experienced personal/family milestones
Research I conducted
Policy did not align to my life circumstances
Level of service received
Frequency/relevance of communication
Recommended by broker, friends
Policy benefits/coverage
Cost/terms
Global Total
Life* Auto Home
*includes life insurance and annuitiesNorth America Latin America
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sensors to optimize engine operations and
bolster fuel economy. These same sensors
present potential for insurers to offer value-
added services. Most insurers already offer
roadside assistance. So-called “smart” cars
could allow them to add direct services like
a car-maintenance application that lines up
appointments for oil changes and reminds
drivers to check their tires. Leveraging what
they have learned from the credit card
industry, insurers could use telematics data
and analytics in so that a suspicious change
in driving pattern or behavior would notify a
real-time theft-monitoring center that can
alert the owner.
Indirect services provided by the insurer,
can also create customer loyalty and
help enable ancillary revenue streams.
For example, providing valet services at
airports for frequent travelers, or helping
the client by facilitating or buying ‘end of
lease’ vehicles in partnership with a dealer
network could keep customers engaged.
Insurers do not have to keep these
ancillary products and services confined to
vehicles. Impressive examples from other
industries include Verizon’s offer of GPS
routing service for both pay-per-use and
flat monthly fees and Costco’s discounts
to members if they buy a car through their
dealer network.
What does GPS routing have to do with a
cellular phone company’s core business?
What does car buying have to do with a
consumer goods store? Insurers have the
Insurers will have to create out-of-the-
box products and policy benefits to keep
customers engaged. Benefits offered may
or may not be directly related to insurance
services. Examples include credit card
companies offering travel insurance,
or an insurance company like Allstate,
collaborating with United Airlines to offer air
miles for every dollar a customer pays on
their premiums.
Telematics offer an example of the
opportunities that will enable insurers to
develop ancillary products and services to
keep the customers engaged and possibly
add new revenue streams to compensate
for the loss of premiums due to enhanced
adoption of autonomous vehicles and UBI.
Cars already contain an intricate network of
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connected home. Some early adopters
of these gadgets, were in it for the trend-
setting appeal, while others sought to save
money on heating and electricity bills.
ability to create partnerships and product
lines that fall outside the core of their
industry, yet help maintain and gain market
share by creating a solution that elevates
brand recall among consumers when
making a buying decision.
Are smart homes worth incentivizing?ConnectHome and Smart Home have been
the buzzwords for a few years. Most people
thought of these types of residences would
take years, if not decades, to become real.
Although no single solution is available to
turn a regular home into a “smart home”,
consumers can combine thousands of
products such as connected light switches,
RFID sensors and proximity sensors to
piece together their own version of a Source: Forbes.com12
Projected new adoption of connected Technology by consumers
In the next year
Five years from now
More than five years from now
Total expected adoption
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The threat of someone breaking into the
home without ever stepping foot inside
is as real as the growth of smart homes.
Hackers will still find ways to know what
they can control while being thousands
of miles away. This threat will give rise to
a nascent, growing home data security
industry.
From a risk underwriting point of view,
insurers will have to start rating the
exposure that smart homes have to such
remote attacks. At the same time, this
provides an opportunity for specialty
insurers to offer protection in partnership
with data security vendors.
Flying Robots: How will drones affect claims and underwriting? Drones were hobbyist novelties until
people started attaching video cameras
to them. Suddenly, everybody had access
to a bird’s-eye view of their environment.
Camera-equipped drones can hover at
a low altitude without the cost of hiring
pilots to fly helicopters or small planes. This
has important implications for insurers of
homes and personal property.
The FAA has determined that small drones
are “currently the most dynamic growth
sector within the aviation industry.” By
2020, it is estimated that about 30,000
small unmanned aircrafts will be used
Smart thermostats and security systems
seem to be the first choice for home
automation. Devices like these are a win-
win for the consumer and the insurer.
A smart thermostat can help prevent
plumbing from freezing, while a leak
detector can shut off the water supply if
it detects abnormal moisture. Insurance
companies could incentivize adoption
of this kind of technology with discounts
for customers that install these gadgets.
Mainstream adoption is predicted to take
place within the next two to ten years. It’s
only a matter of time before smart homes
are more common, especially as the
constant downtrend in technology prices
will make them more affordable.
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to rebuild or repair homes in customers’
hands in days rather than weeks or
months. Customers emerge grateful for
speedy insurers.
• Farm and property surveys: An early
adoption of survey drones could be
for farm and crop insurance. The
surveyor would not have to deal with
the congestion of structures, and could
remain compliant to the various FAA
guidelines governing the conditional
approval accorded to insurers.
• Home inspections: Imagery gathered
through drones combined with powerful
analytical algorithms could also be used
to calculate the floor area of a property
based on its rooflines, the angle of the
picture, and the altitude from which the
picture was taken. Some niche providers
have started developing and testing such
algorithms for simple structures with clear
rooflines.
Think about the convenience to the
customer, who wouldn’t have to be home
for the inspection. The insurer would
save time and improve utilization of their
surveyors, because they could work
independent of the homeowner’s schedule.
Insurers could see potential savings from
for all types of business purposes. The
FAA has allocated $63.4 billion for the
modernization of the country’s air traffic
control systems, as well as an expansion of
airspace to accommodate the commercial
use of drones.13
Much has been said about how the use
of drones will revolutionize insurance
operations. After all, a drone can see
entire neighborhoods or focus on specific
properties.
Property and casualty insurers should
consider drones for several areas including:
• Natural disasters: Following an
emergency, claims adjusters with drones
could identify insured homes, assess
damage, process claims and have money
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Administration (FAA). In a significantly
positive step towards developing
a structure, operational ethics, and
boundaries, several insurance companies
(including commercial roofing groups,
shingle manufacturers, and the Insurance
Institute for Business and Home Safety
(IBHS)) have joined the Property Drone
Consortium (PDC) to work together to
promote research, development, and the
establishment of regulations for the use of
drones. Armed with a limited approval from
the FAA, some insurers have already tested
drones for battery life, picture resolution,
collision avoidance, emergency landing
and more.
There are several challenges that will
need to be addressed before we see
drones becomes an integral part of the
claims investigation or underwriting survey
process:
• In June 2014, the Washington Post
reported, “A NASA database of
confidential complaints filed by pilots
and air-traffic controllers has recorded 50
other reports of close calls or improper
flight operations involving drones over
the past decade. Since November 2009,
law enforcement agencies, universities
and other registered drone users have
reported 23 accidents and 236 unsafe
incidents, according to FAA records.”14
The PDC will have to ensure a tight
self-regulation regime to ensure public
security and safety.
reduced employee liability insurance
because the contractor / employee would
be no longer climbing roof tops and putting
themselves in harm’s way.
In order to achieve the most optimal
outcomes, insurers will need technology
combined with sophisticated analytical
models, as well as a new back-office
support structure. The question then
becomes whether this is an area that
insurers should invest in for themselves,
or if the investment should be left to other
service providers gaining expertise in these
areas?
For now, large insurers in collaboration
with certain niche service providers are
taking the lead in research, trails, and
lobbying efforts with the Federal Aviation
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companies or individuals that need a
temporary drone for activities including
surveys.
• The FAA regulates drones as if they are
piloted aircraft. The FAA is beginning to
loosen its restrictions on commercial use
of drones, but the rules remain numerous
and complex. Insurers must be prepared
to conform to FAA drone requirements.
What do insurers need to know about car- and home-sharing services? Until recently, you had to be a cab driver or
chauffeur to drive people around for pay.
With the rise of Uber, Lyft and other car-
sharing services, anybody with a car can
pick up extra money by taking other people
along for the ride.
Something similar is happening in the
hospitality business, where Airbnb helps
people rent out their home to travelers.
Most home and auto insurance policies are
not written with this kind of commerce in
mind.
In January of 2015, the CEO of a startup in
Austin, Texas, decided to give up his car for
31 days and rely solely on two car-sharing
services. In the course of his travels, he
noted one striking fact: Nine of out ten
drivers he talked to had not spoken with
their insurance company about their ride-
sharing jobs.15
It’s not that the people doing the sharing
are creating huge liability gaps. Uber, Lyft
• Insurance liability and coverage issues
must be addressed, including personal
injury, invasion of privacy, aerial
surveillance and data collection.
• Large insurers may need to develop
the means to cooperate with their
competitors so that disaster scenes
aren’t buzzing with dozens of drones. A
centralized governance body like PDC
could be an easy answer to this concern,
but the operational nuances will need to
be addressed.
• Small and medium sized insurers may not
have the resources to deploy drones or
to contribute a lot of research dollars to
the PDC. Fly4Me could be an answer to
this industry segment. The FAA recently
approved an “Uber for Drones” program
that connects local drone pilots with
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develop hybrid policies that account for
the times when cars and homes are being
shared.
OK, where do I start? Truly capitalizing on these market forces
will require strategic attention and
investments across several fronts. This
underscores the need for prioritization, pilot
programs, follow through, and governance.
Broadly speaking, companies will need all
aspects of their organization to be flexible
and responsive. Front, mid, and back
offices will need to be tightly integrated as
initiatives are designed, tested, assessed,
and then scaled or abandoned.
Regardless of the specific initiatives
undertaken, investments and
transformation should be considered to
varying degrees across the following areas:
Analytics
Whether understanding or predicting
customer behavior, assessing impacts
on risk, or identifying up- and down-
stream impacts on business operations,
analytics will be a key driver of truly utilizing
company data to transform corporate
decision making.
and Airbnb all provide up to $1 million in
liability coverage. But sharing services
change the risk profiles of the drivers and
homeowners who use them. Offering a
ride in exchange for money constitutes
a commercial activity, and in the eyes of
the insurer, that means the driver needs
commercial insurance. Uber covers its
drivers as long as they are driving an Uber
passenger. What these drivers don’t realize
is that it leaves them dependent on their
personal auto policy when they aren’t
driving for Uber. Insurance companies are
becoming increasingly aware that people
are relying on personal policies to cover
commercial work. While some companies
like GEICO and USAA launched pilot
products aimed at ‘ride share’ drivers, the
industry must adapt to these realities and
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back offices. This will allow for testing
new products and programs with an eye
on either scaling or failing quickly. This
integration might require assessing and
transforming operating models, increasing
standardization, and adding capacity in
some areas.
Operational and opportunity cost controls
Time and budgets are zero-sum games
for many organizations. Initiatives that
capitalize on the many market disruptors
the industry faces – including role and
task analysis to carve out, remove, or
automate non-core tasks – will become
vital to the success of the initiative. These
efforts will minimize the time their best
and brightest spend outside new strategic
efforts. Further, insurers will need to take a
surgeon’s scalpel to operating costs to free
up investment funds for testing and scaling
new initiatives, and to protect against
trends that might threaten revenue in the
near and midterm.
These are exciting times for an industry
built on managed risk and safe returns.
Driven by technological advancements,
these disruptors present challenges or
opportunities based on the degree insurers
prioritize them, and find a way to profit in an
environment of disruption.
Automation and technology
Insurers will need to find ways to tackle
disruptors, improve the end customer
experience, and drive productivity, while at
the same time working within cumbersome
legacy IT. In this type of environment,
insurers will increasingly need to assess
automation technology and SaaS/cloud
deployment of discrete point solutions that
can provide lifts in key areas quickly and
cost effectively.
Front and back office integration
In an environment with multiple
simultaneous disruptive forces, it would
be highly unlikely that every new initiative
will be an out-of-the-box success.
Insurers will need to design for operational
flexibility, with tightly aligned front and
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6. http://www.futuristspeaker.com/2012/01/driverless-cars-a-driv-ing-force-coming-to-a-future-near-you/
7. http://www.mckinsey.com/insights/au-tomotive_and_assembly/ten_ways_au-tonomous_driving_could_redefine_the_automotive_world
8. http://www.mckinsey.com/insights/automotive_and_assembly/ten_ways_autonomous_driving_could_redefine_the_automotive_world
9. http://www.driverless-future.com/?p=678
10. https://www.progressive.com/news-room/article/2012/july/snapshot/
11. http://www.ey.com/Publication/vwLUAssets/ey-2014-global-custom-er-insurance-survey-america/$FILE/ey-global-customer-insurance-sur-vey-america.pdf
12. http://www.forbes.com/sites/gil-press/2014/08/22/internet-of-things-by-the-numbers-market-estimates-and-forecasts/
13. http://www.riskandinsurance.com/rise-drones/
14. http://www.washingtonpost.com/sf/investigative/2014/06/23/close-en-counters-with-small-drones-on-rise/
15. https://www.thezebra.com/insur-ance-news/848/uber-vs-lyft/
References 1. http://www.alertdriving.com/home/
fleet-alert-magazine/international/hu-man-error-accounts-90-road-accidents
2. http://recode.net/2015/05/11/google-no-our-self-driving-cars-arent-getting-dinged-up-that-much/
3. http://www.mckinsey.com/insights/au-tomotive_and_assembly/ten_ways_au-tonomous_driving_could_redefine_the_automotive_world
4. http://www.brookings.edu/research/papers/2014/04/products-liability-driv-erless-cars-villasenor
5. http://www.brookings.edu/blogs/techtank/posts/2014/04/driverless-cars-pay-for-an-accident
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