Commodity traders were the very first financial service providers, relying on a complex system of trust – ‘My word is my bond’. The practice has continued for many centuries, passing down from large farms / shipping agents / manufacturing companies to the individual. This is all good as long as the company providing the service really can trust the customer.
The motor insurance industry is facing a huge change in the way it operates, and yet many companies in Europe are too slow to either recognise the dangers or to adapt their processes. For many years in the UK use of a vehicle has the requirement of insurance along with some annual vehicle inspection and road tax as a legal obligation.
Up to 2005 the situation was each of the three data systems could not verify common information, relying on trust. Those who realised that a vehicle could appear to be owned by person A, driven by person B and taxed by person C made a lot of money by not paying what was due or not paying at all. From 2005 onwards co-operation of HM Government who ‘owned’ two of the three data systems, and the collective UK motor insurance companies developed new systems to cross verify information. The result was that from 2014 onwards the Police and road side number recognition cameras could detect if a vehicle was inspected, insured and taxed.
Fear not. The data systems are on line, but still require the vehicle owner / user to manually input information around once per year. Once that is done, the motor insurance company can only expect contact with the customer after they bought the policy if and when there is a claim. What’s missing? Real time data.
So the insurers who have business guaranteed thanks to the service being a legal requirement to use a vehicle on HM Queen Elizabeth II’s roads thought…. This is our game, and no one can get ‘our’ customer. Not even the pesky people who build or maintain vehicles.
Except the wireless data transfer and manipulation revolution was not merely underway, but gathering pace. The insurers decided that because it was their ‘game’ they would add boxes which could give date / time / speed / location, and if they were hooked up to the OBD II port, vehicle data as well. Except the dream of proving who was at the steering wheel when an incident occurred, or proving the wipers were on (wet road) or that the brake lights were on (the driver did try) are mostly just that – a dream. The collective UK motor insurers feared external competition but feared each other more – so there was no common standard to define what insurers wanted to see. The standard was indeed created, but was not agreed.
So the motor insurers haired off to fit boxes, naturally at the end user’s expense, in return for discounts based on betting shop style risk pricing – all tied to a single insurer. When to use the same service with another insurers? That’ll be another box and fitting fee. The approach was technologically antiquated in 2006, when the draft standard was first written – in 2016 it’s just embarrassing.
Why not fit a ‘box’ and allow any insurer to use it as part of the contract? Because there isn’t a specification for what it should do agreed by all insurers who want to offer this service.
Well, what a complete surprise. The only people taking the ‘boxes’ were the highest risk drivers who were forced by the betting shop pricing structure for ‘conventional’ policies to consider not selling themselves or grand parents to purchase but one year of motor insurance. But that’s not the half of it.
Meanwhile in the global vehicle manufacturing world connectivity was seen as a way of improving profitability by updating software whilst the vehicle was in use. Further the vehicles which are maintained by manufacturer agents have fully ‘live’ systems which allows all kinds of commercial opportunities to take place, ranging from service reminders to buying new tyres. Why did this happen? Vehicle manufacturers (OEMs) had the same issue as the motor insurer – people would buy a new vehicle, or a young used vehicle, and then effectively spend next to nothing. Except when the vehicle went wrong under warranty.
Further, the OEMs were suffering with a small device which most people carry with them at all times. The smart phone. Businesses smart enough to develop services which were accessed via smart phones soon realised they could not only bypass other businesses but also start to sell into the OEM ‘value chain’ directly. So the OEMs did what they always do. They fought back, by partnering with those very businesses to ensure at point of sale their brand was present.
Note to insurers. The OEMs are collectively not very bright, but they figured that going off into a corner to invent what had already been invented was a complete waste of time and money.
We can see the pattern
e-Commerce is – for the moment – reliant on a series of carriers onto which service providers purchase access. No access, no business.
And those insurer ‘boxes’? They were only going to have a shelf life of less than 10 years from 2010 onwards, because most vehicles built since then have the hardware and firmware to enable broadcast from and to the car. Indeed some cars have this enabled already – BMW Group for example made such connectivity standard on all cars from September 2015 onwards, whilst Audi is in the process of doing this right now –along with many, many other OEMs.
So from 2006 when establishing a motor insurance communication / data standard until 2016, when no such standard exists, the commerce has moved away and relegated the insurers from being the all-encompassing provider to an aspect of service provision alongside providing maps to access to nearest Nandos. How the mighty have fallen – except most UK motor insurance companies still don’t recognise this.
Still with fingers in their ears
Live data streaming allows the by-product of driver behaviour to be enabled, which has been surprisingly popular with drivers below around 35 years old. Telematics can, if set up properly, enable objective data capture at the time an event occurs. Even if one vehicle involved in a multi vehicle impact is equipped with data capture, it can transform the way a claim is handled.
However UK motor insurers have taken the long term view (not) and decided it is a niche product for high risk customers. They know it can do more, but stumble around whilst muttering ‘customer centric’, ‘value add’, ‘key to key’ …. unable to get mass market adoption of telematics technology. The record is cracked. The future for motor insurance is bleak because of the tardy adoption of technology, inability to embrace change and belief that nothing will change.
A vehicle with a basic set of driver assistance aids will have fewer incidents than one not equipped with anything but a human at the controls. Thanks to existing technology risk assessment and thus pricing can be altered km by km, location by location and by time of day. Please tell me, whilst insurers will need statisticians and actuaries – who needs underwriters? And those immense claims departments – well the next decade will lead to fewer incidents and so claims. Worse, motor insurance is now on the same level for the motorist in the UK as McDonalds or the pesky iTunes – perhaps a bit glib, but a few years from mass market reality.
Now that’s transformation
Autonomous illusion: On the 3 May 2016 Volvo and MIRRC Thatcham (the UK motor insurance funded repair research centre) co-launched the UK autonomous driving programme, which is an extension of the planned experiment to be run in Gothenburg. Whilst this is interesting, and the impact for the motor insurance sector will be profound, the campaign fails to mention the reasons why adoption will take a long time. These reasons are:
1- The law. No country has enabled law to cover off who is responsible for what with autonomous driving, although the USA is close to draft legislation.
2- The Insurance sector has not been part of this process, yet.
3- The systems are built in to vehicles at point of manufacture, and as yet there is no bolt-on after market system. So adoption is currently only possible for ADAS or fully autonomous systems via new vehicles.
The last point is critical
Once the systems are approved (Government, insurance) and mandated via law (government), the rate of adoption will be via annual sales. In the UK we have around 32 million vehicles and new vehicle sales running at about 2.5 million units per year. So from the point of agreement, it will take nearly 13 years to achieve mass adoption, during which time there will be further system ‘revolutions’. Currently these systems are a mix of stand-alone and clustered networks, which will not be able to accept major upgrades to enable universal vehicle to vehicle or vehicle to infrastructure communication.
This also does not address the reality – ADAS and autonomous systems are under development and are not ‘perfect’. The first commercial ADAS systems have been through at least three iterations since 2008, and we can expect similar rapid system improvements when the first fully autonomous systems are released. So the sales pitch for a perfect world by 2020, 2021 or 2035 is wide of the mark.
However, the change for motor insurance will be profound, and is getting underway right now. As I stated at the CIC conference, regardless of how South Africa accepts or rejects this type of technology, it is coming to the country anyway.
Auto Industry Consulting is an independent provider of technical information to the global collision repair industry. Products include EziMethods, our online collision repair methods system and Auto Industry Insider, our collision repair industry technical information website. For more information please visit the websites: www.ezimethods.com and www.autoindustryinsider.com or contact firstname.lastname@example.org