Why the auto industry is ripe for disruption
Some industries have been quick off the mark when it comes to innovating and transforming their business models to keep up with new technology and changing customer expectations. Steve Schwartz explores why the insurance industry is ripe for disruption. Steven has a passion for company building, which led him to his current role as CEO Quest Managing Director– where he coaches tech company CEOs towards accelerated company growth. He is recognized as an innovation leader in the fields of risk management, cybersecurity and personal data. This article was originally posted on InsurTech Rising >>
Today, most people are driving in semi-autonomous cars, or semi-self-driving vehicles, whether you realize it or not. You may have nice specs, alloy rims and some cool new tricks that are operating internally yet experienced externally: contactless keys, dynamic cruise control, parking assist, self-correcting lanes, and a bunch of other mini-innovations that improve the driving experience for you personally, and anyone driving with you or around you.
We know that roughly 93% of all vehicle accidents are caused by human error. And of that, almost 1 trillion dollars is spent on auto repair. Sit back and question that for a second, and that’s when you realize that all of this money – nearly 1 trillion! – is being dropped, variably, right into the pockets of the auto repair companies and the physical parts manufacturers. These companies have remained semi-relevant amidst semi-autonomy by consolidating their operations in a cartel-esque manner through the three-word acronym we commonly call OEMs (original equipment manufacturer).
Traditional OEMs are not only dying, but in the glaring absence of innovation they’ve failed to prevent deaths. Although they do not produce physical parts, their innovation latency causes physical damage on a human level. There are roughly 30,000 deaths per year due to auto accidents in the United States alone. To repair the auto industry itself and its surrounding ecosystem, the cost of lives must be evaluated and addressed.
How? Through autonomy.
If you can take the 93% of human error caused by accidents down to 20%, 10%, 5% and ultimately under 3% with a semi-autonomous (level 2, 3, 4 and 5 autonomy) vehicle, what will happen? First, you save lives (and the costs of healthcare). Second, you can collapse the entire business model which runs on auto accidents.
This is where our favorite subject enters – insurance. Traditional insurance. The intangibles and untouchables – The Benjamin Buttons of innovation!
First, let’s take a look at the premiums you as an individual pay relative to the cash outlay that the insurance companies must make due to accidents. With the potential significant decrease in accidents due to autonomous cars, to say business models of the incumbents in auto insurance will shift dramatically is an understatement.
This concept – a company without a tangible product which makes money off the liabilities they have on their balance sheet by means of your deposits – is going to pay for stagnation by means of obsolescence.
At the intersection of reality, now a reversal occurs – individual empowerment amidst institutional disempowerment – the next generation of insurance companies (insurance-as-a-service, InsurTech, ethical autonomy, you name it) will naturally, inevitably and ultimately rise to the top of the pack.
It is only sensible, therefore, to presume that the future of auto insurance in a world where the metadata becomes statistically significant as it intersects with the data of connected vehicles is as transformative as it is fascinating.
Why? Because now I can just pay as a drive. A true service (finally!). A pay-as-you-go business model which is as exact as it is precise. So, I – as an individual, an owner, leaser or driver turned rider – am not longer an “average” anymore. This is the concept of hyper-personalization, hyper-humanization, and hyper-empowerment.
There is an excellent example of hyper personalization where I, as an entity, know precisely how many miles I actually drive, and the premium I pay is directly correlated with this. Furthermore, what if I as the user can actually obtain insights into my driving behavior (i.e. hard brakes, speeding, etc…), further influencing coverage premium and empowering me to drive behavioral change with analytical insights and recommendations.
The truth is, the business model has already been created in form and substance. It exists today – there are insurance companies offering that solution as we speak – and I suspect it will increasingly become the standard. It will be interesting to see which insurance companies become print newspapers, which ones become blogs and which ones have left ancient history to trade perhaps one fiscal year for the opportunity to pioneer the next frontier.
By 2020 we will live in a world with 50 billion connected products – this is the reality of the world we are inheriting later. Its enormity is surpassed only perhaps by its complexity.
So, if you are at a company right now that is just starting to feel pretty good about your position along the intelligence of things continuum, really pumped up about your digital marketing team’s evolution, your grasp on social media/SEM/SEO and building a multi-channel experience, your understanding of what your customer wants, enjoy the feeling. Because you’re about to be disrupted.
You’re going to get disrupted in a way that’s staggering in its infinite nature, with infinite more data points, infinitely greater opportunities, and as a result, infinitely more options amidst a sea of competition which makes you feel infinitesimally small. Suddenly, this competitive force has built such a commanding lead that is unexpected, yet totally expected in manner when the rose-colored glasses are removed the moment your eyes open and you’re awakened by the knockout punch. Yep, a good old KO before you even heard the bells go off with a punch that will keep you down until the ringing in your ears reaches such a peak to which you tap out (of capital, resources and willpower).
As you attempt to race ahead of the pack, skipping pages throughout the book, you may get to the end of the sixth chapter and turn the page before you realise that the person you wrote the book with, and then the trilogy and blockbuster screenplay that followed, has now been indirectly responsible for your permanent residence in Chapter 7.
Why will you get disrupted, you ask? We’re going to move from thr past where connectivity of products was for operability, towards a new era where connectivity will lead to predictability and optimization. It is here is precisely and exactly where machine learning takes place – when the machines become smart. Indeed, as machines become more intelligent they start to recognize patterns, then they can start to actually give you advice. Next, they start to predict what the outcomes could be. And that, well, leads to artificial intelligence.
Insurers, and especially auto insurers, will need to jump on board with the idea that when we create alignment of interests between consumers and service providers, we create value. And then, finally, when there is an alignment of interests, brokers can improve network efficiency and amplify value.
