Data at the core of mobility

Below is an article I wrote for the Risk Consulting Magazine published by If Insurance, issue 2020/03. Link to the published article, as well as link to the issue.

Internet of Things, Big Data & Artificial Intelligence will fuel new partnerships and ecosystems in the Insurance industry.

Let’s imagine a simplified “mobility ecosystem”, where we have three parties involved. First, we have the customer, who buys the car and uses it to get around. Secondly, we have the original equipment manufacturer (OEM), who builds the car and sells spare parts for it. And finally, we have the insurer, who insures the OEM against product liability risks, and the customer against accidents and theft.

Insurers have historically been sitting on a “treasure trove” of data, based on their superior knowledge of the accidents that happen. They have used it to deduce which factors affect the likelihood for a given customer in a given car to have an accident. Simply put, insurers have been in a unique position to understand, price and help customers manage risks.

The game is changing in the mobility ecosystem

However, the recent advances in sensor and processing technology – as well as connectivity – are changing the game in the mobility ecosystem. OEMs can now cheaply build sensors and intelligence into their products, that enable them to understand how their cars perform and how they are being used. This information is utilised to improve the product and create a better experience for the customer. Today, being able to reach your car via your smartphone to switch on your heater and having a smart infotainment system are standard in several brands.

But for the OEM, the value of the connected and intelligent car does not stop there. They get access to unparalleled details of information, not only about accidents that happen, but also close calls and how driver behaviour affects risk. And by extension, OEMs use this information to build active risk prevention measures – often called active safety systems – into their cars where the sensors and intelligence decrease the risk of having an accident altogether.

Simply put, OEMs will be in a unique position to understand how their products are being used, what risks they are exposed to, and even design active risk prevention measures into their products. I would argue that this increased “scope” of the OEMs’ role will enable them to become – more broadly – mobility providers, where customers no longer need to take on the risk of owning a car, but can simply use a mobility service to get around to where they want to go. Because really – if you had the choice of using a car “as a service” with a truly predictable cost that covers “everything” – would you still want to buy and own a car?

Are you prepared for the future ecosystem in your industry? Is your company ready for the changes that lie ahead?

The risk is, that arguably bad drivers prefer to pay for the service rather than ownership, while good drivers prefer to own their car. This would imply, that clients paying for the car as a service carry higher risks, thus the cost would go up. However, in a data-driven world that does not have to be the case as the data will allow for more accurate pricing to reflect a customer’s true risk.

But OEMs and drivers will still be exposed to risk, although it is changing in nature. Systems still fail, accidents still happen, but the factors behind them will change. With all the connectivity and intelligence in modern cars, new risks such as cyber emerge. Collaboration between OEMs and Insurers will need to develop in order to keep pace with the advancements in insights enabled by sensor technology and AI.

Insurers have a relevant role to play

Even for OEMs with a truly unique view into their customers’ risks, insurers have a relevant role to play beyond being a financial carrier of risk. When the customer is involved in an accident, insurers will remain a key bridge between the parties that need to be involved to help the customer through it.

The unique value proposition of the insurer is the knowledge of how to best take care of a customer that has an accident – through the network of medical help, roadside assistance, repair shops, and so on. This “accident care infrastructure” is simply too challenging for each OEM to maintain on their own.

Similar trends can be spotted in other ecosystems as well, where the role of players, including insurers, will change. In the home ecosystem, smart home technology is powering new insight into risks in the home. And in the health ecosystem, smartwatches are enabling new levels of preventive care.

For many companies, when faced with this type of change, it makes sense to consider how well positioned one is to “win” also in the future ecosystem. Is your company ready for the changes ahead? But just as importantly, is your company prepared for the digital risks involved?  And are you participating in the change as a driver or as a spectator?