Time flies when you are having fun, or in the insurance innovation business.
It’s only been three months since we’ve talked about what is going on in the automotive industry and what it means for insurance, but plenty of changes have taken place on the Long and Winding Road.
Incidents and Accidents
We’d be remiss to start anywhere but with a mention of the recent fatal accidents involving both a SUV used in Uber’s testing program and a private party using a Tesla in autonomous mode.
In addition, a driver was killed in Florida in May of 2016 when he ignored repeated requests from his car(!!) to place his hands on the steering wheel of his Tesla Model S. Over the course of 40+ miles and 34 minutes, he had his hands on the steering wheel for less than two minutes.
At least three deaths from autonomous operation of vehicles in the US. Although one is too many, what have we learned?
It is too early to assess fault or liability in the most recent accidents, but there are a couple of takeaways:
- Smart machines can’t undo the laws of physics.
- Humans are unpredictable and regularly make mistakes.
- The blame game will always be played.
- Nay-sayers use problems to justify their positions.
- Regulators and governments respond to optics more than logic.
- Competitive pressures can lead to corners cut.
Although accurate industry statistics on total autonomous driving miles are hard to come by, we have two hard data points from Waymo and Uber.
- Waymo announced March 1, 2018, that they had completed 5 million miles of fully autonomous driving on public roads, with the pace accelerating. They completed the last million miles in 3 months.
- In late 2017, Uber announce that they had completed a million miles and 30,000 trips.
Both California and Arizona have recently passed laws that allow fully automated (no drivers behind the wheel) testing of cars on their public roads. These two states openly admit that by being pioneers in supporting the industry, they believe they will attract desirable employers and jobs for their residents.
Other states are taking a wait and see attitude, but as the benefits of autonomous vehicles become evident, more DOTs will liberalize their views and legislation.
Guy Fraker, Chief Innovation Officer from Insurance Thought Leadership provides some interesting commentary on the technological and societal impacts of autonomous cars here. (Registration Required)
The Race is On
Waymo seems to have a clear lead in the technology space. In addition to their on-road miles, they have built a test track and simulation software that allow rapid iterations of their driver software.
Unlike many of the other industry players, Waymo doesn’t think that they are in the car business. They are in the driver business.
Waymo CEO John Krafcik says “Our role in the world is to build the most experienced driver and deploy that driver in as many places as we can”.
In a recent announcement, Waymo and Jaguar announced a partnership to build up to 20,000 electric cars for Waymo’s autonomous taxi service. The intent is to provide a million rides per day by 2020!
Uber and Lyft aren’t content to sit on the sidelines. Both are actively working on the technology as a way to improve their core businesses. Using autonomous vehicles for their service businesses improves their bottom line and enables for better matching rider volume to vehicles available for hire.
While Tesla’s success in the field is well publicized, most automakers are hard at work too. While they may not be ‘tech’ companies per se, they have always been highly focused on engineering. The automotive business is at an inflection point, and none of the companies want to be left behind.
State of the art automotive design is moving fast in four complimentary directions.
On the CASE
A new acronym is taking the automotive world by storm: C.A.S.E.
Connected. Automated. Shared/Subscribed. Electrified
Connected: As cars get smarter, they are creating more and more data. Estimates are that a current model year car has 40 sensors and can generate upwards of 25 gigs of data every hour of operation. Most of that is being streamed to the cloud via OnStar-like connectivity solutions.
And that is a drip compared to the river of data that autonomous vehicles are going to be generating. And it is about more than just data. McKinsey estimates that the market value of vehicle data in 2030 will be $ 1.5 trillion!
As Guy mentions in the webinar linked above, we’re now going to have a much better understanding of ALL of the variables involved in accidents.
Automated: If you’re this far, you get the point.
Shared/Subscribed: The cost of car ownership is high, particularly when you take into account the fact that 90% of the time the vehicle is parked. A number of different models for reducing these expenses by sharing car ownership are in the works.
One of the most popular is a fleet of vehicles that is available for use by subscribers. You pay a monthly or per-use fee which allows you to use one of the cars in the fleet.
Tesla has plans for a system that would allow individual owners to ‘share’ their cars with other drivers.
Electrified: Electric cars have gone from an impractical experiment to usable tools. Range continues to increase as the cost of evermore powerful batteries continues to decrease. The national network of recharging stations is growing, with over 16,000 reported in the U.S. as of November,2017.
One additional risk that comes with high power batteries is that some will burn if damaged.
Each of these four trends has implications for auto insurance. We’ve discussed how autonomous vehicles could reduce accident frequency. Connected vehicles could facilitate new insights into behavior and usage, potentially allowing significant refinement in pricing. Electrification may change exposures and could increase loss costs if battery replacement expenses are regularly incurred.
Car sharing and subscriptions may have the second biggest impact on the insurance industry behind loss reduction.
Share and Save
Robin Chase, the founder of ZipCar, the longest lived and most successful car sharing company has some enlightening statistics. One shared car takes 15 cars off the road. And drivers of subscribed vehicles reduce their road miles by 80% because each trip now has a hard cost.
But you say, ‘I’m never going to give up my car and neither are my friends’, so shared cars will continue to have a minor impact.
Not so fast.
Perhaps many Americans won’t completely give up owned vehicles. Ponder this: In the age of autonomous and shared vehicles, does a household really need two (or more) owned cars?
With some planning, a family could get both adults to work on time with one car. Today, they ride together. With an autonomous car, mom could go first and the car drives itself back to pick up dad, parking itself in the driveway at home after dad has been dropped off at work.
Ready to take the kids to their after-school activities.
When there is a genuine need to have two cars on the road at once, the second car could be provided by a subscription service. The potential is that an average household might be able to cut the costs of auto ownership by almost half. To the tune of $500 or more per month.
In addition to the impacts that CASE are sure to bring to the auto insurance line, there are a number of challenges coming from inside and outside our industry.
Automakers are changing the insurance game.
Tesla has partnerships with AXA in Hong Kong, QBE in Australia and Liberty Mutual in the US to bundle usage based insurance in with their ‘Insure My Car’ initiative. Their intent is to have a single monthly payment that bundles the car, insurance and maintenance payments into a single bill.
Cadillac, Ford, Mercedes Benz and Porsche have each announced support for a programs for subscription cars.
Volvo has announce Care By Volvo, an offering which bundles lease payments, usage based insurance, maintenance and new car upgrades into a single payment. It is slated to launch later this spring in all 50 states.
There are a number of initiatives being brought to market by the insurance industry as well.
State Farm has just announced they have formed a new insurance company called HiRoad that will provide a mileage based insurance product that they are piloting in Rhode Island.
AAA, Assurant, Chubb (via ESIS), Hamilton and Liberty Mutual have all announced support for insuring car sharing programs.
A couple more IA channel companies are providing coverage for TNC drivers, but frankly there are too few, and the national coverage is spotty at best.
Long Story Short
The challenges in the auto line are just beginning.
- Additional information from connected cars will enable new underwriting and assessment of fault.
- Autonomous cars will create risk that incumbent insurers may not be willing to underwrite. Automakers and new entrants will step in.
- Car sharing in many forms will decrease the total number of exposure units insured in the traditional market.
- Electrification will increase costs of vehicles and impact the service costs. Potential exists for increased severity of loss due to battery replacement or fires.
There doesn’t appear to be an near term end for both premium erosion and new risks and opportunities. The risks associated with auto insurance are changing quickly, and the old days are never coming back.
Both agencies and companies need to step up to take advantage in this fluid environment. What steps is your organization taking to address the changes taking place in the auto lines? Are you:
- Decreasing your reliance on auto?
- Finding new carriers that are more flexible and supportive?
- Driving product innovation to address the new opportunities?
Comment below and we can get a conversation started.