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Autonomous Vehicle Insurance: The Present and Near Future

We’re about to witness the evolution of autonomous vehicles from Level 0 to Level 2. While Level 0 is completely human-driven; Level 1 vehicles can control braking and parallel parking themselves. Level 2 vehicles can operate automatically, but with a human ready to control exceptional situations.

The success of self-driving cars depends solely on the safety it brings to transportation. With increased safety, will we even need insurance for autonomous vehicles?

Perhaps, the traditional insurance policies might face a setback. But, autonomous vehicles will certainly open new avenues for innovative insurance products.

The Stevens Institute of Technology predicts that there would be over 23 million fully autonomous vehicles by 2035 in the US alone. 

To stay competitive with the changing dynamics of auto insurance, insurers need to address new risks. But before, let’s take a look at potential risks in the autonomous vehicle insurance sector.

Autonomous vehicle insurance: the evolution of autonomous cars from Level 0 to Level 5

Potential Impact of ‘Autonomous Vehicles’ Revolution

The shift to autonomous vehicles tends to bring dramatic changes in auto insurance premiums.  

Instead of individual policies, researchers foresee insurance policies turning towards original equipment manufacturers (OEMs) and service providers such as ride-sharing companies. The new auto insurance products would be an outcome of the following transportation changes.

New Road Regulations

With autonomous vehicles on the roads, safety regulations are prone to change. For instance, the US National Highway Traffic Safety Administration intends to reconsider its current safety standards to accommodate AVs in existing transportation. But, this reformation will take the presence of human drivers into account.

Increased Safety and Reduced Claims

With increased safety and reduced accident claims, the revenues from traditional premium policies might decline.  

Insurers often follow a “no-fault” system to lower auto insurance costs by taking small claims out of the courts. For minor injuries, insurers compensate their policyholders regardless of who was at fault in the accident. 

However, fender-benders would be more than it is with autonomous vehicles. Also, blockchain in insurance would become integral to investigate the root cause of the accident. And, of course, there won’t be much scope for lenient “no-fault” policies. 

Change in Insurance Liability

Traditional liability insurance pays for the policyholder’s legal responsibility to others for bodily injury or property damage. With autonomous vehicles, the liability is going to shift towards OEMs, suppliers, or car-rental service providers.

Underwriting?

Currently, automakers must adhere to around 75 safety standards. This underwriting considers that a licensed driver will control the vehicle. The safety standards are going to change with more AVs on roads.

The present-day premium is high for a handful of autonomous vehicles because of insufficient data with underwriters and actuaries. However, chances are, major OEMs will cover the insurance premiums in the vehicle cost. 

For instance, Tesla, one of the pioneers of autonomous vehicles, provides auto insurance at 30% lower rates than other insurance providers. Tesla having a better understanding of its vehicles’ technology and repair costs, believes can provide low-cost insurance. This is also a threat to insurance carrier fees.

Scope for New Autonomous Vehicle Insurance Products

Accenture estimates that autonomous vehicles will generate at least $81 billion in new insurance revenues in the US between 2020 and 2025. It also foresees opportunities for insurers in cybersecurity, product, and infrastructure landscapes. Let’s take a look at new auto insurance avenues. 

Cyber Security

While AVs ensure safety, there are unidentified cybersecurity threats. Vehicles fueled by IoT technology deal with comprehensive telematics data. Capturing every moment of the user proposes risks like identity theft, privacy invasion, misuse of personal information, and attacks from ransomware. According to the Center for Strategic and International Studies and McAfee, globally cybercrimes cost around $600 billion annually. The shared data from autonomous vehicles bring the financial sector at risk.

On the other hand, monitoring the performance of vehicles and the driver’s behavior behind the wheel can reduce claim investigation turn around time. 

Therefore, future insurance products will also focus on moral and financial threats to passengers.

Product Liability

The product liability insurance might shift from automotive to sensors and algorithms behind the autonomous vehicle. The OEMs will be also liable for communication or Internet connection failure along with machinery and software failures.

Insurance Against Existing Infrastructure

It will take more than 30 years for autonomous vehicles to completely dominate transportation. The upcoming insurance products will take existing infrastructure into account. For example, AVs need insurance if it damages due to puddles or potholes on the road.

Also, car ownership tends to decline with rental and pay-as-you-use models. This opens a fleet-level opportunity for insurers for driverless cars.

Source: Accenture X Stevens Institute of Technology “Insuring Autonomous Vehicles” report

Insurers need to adapt to the rapid technological advancements. Cloud-based insurance workflow platforms or IaaS (Insurance as a Service) models help in achieving operational gains in the entire insurance value chain. 

Concluding Remarks

AVs are going to dominate the world’s highway because of improved safety and convenience. Companies can leverage this opportunity to introduce innovative autonomous vehicle insurance products. 

Growing IoT is blurring the fine-line between different verticals of insurance. To stay competitive, insurers should also indulge in creating new distribution channels and partnerships with OEMs and technology service providers.

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[Interview] Mr. Horacio Sanchez- Granel – Latin American Insurance Industry amidst COVID-19

7 minutes, 50 seconds read

According to the International Monetary Fund (IMF), the global economy is expected to shrink by over 3 percent in 2020 – the steepest slowdown since the Great Depression of the 1930s. To understand the impact of the COVID crisis in the Latin American Insurance Industry, we interviewed Mr. Horacio Sanchez- Granel from Buenos Aires, Argentina, and Insurance & Reinsurance Consultant.

Mr. Horacio has been Chairman and CEO of Boston Seguros, P&C and Life Insurance company for 21 years. Previously, he held senior executive positions in three insurance companies and has several years of experience managing financial service institutions. He has also held other executive positions in an Argentinian oil company and a tractor and industrial machinery international company. Currently, he is a Board Member and part of the Executive Committee in Nacion Seguros, the state-owned insurance company. He also works as an insurance and reinsurance consultant for Argentine and Latin American markets.

Connect with Mr. Horacio – LinkedIn

The excerpt from the interview:

Customer Relationship during the pandemic

Insurance companies play a pivotal role during times of economic stress by helping companies and individuals manage risks and cushion against losses. How should Insurers respond to their customer’s needs, especially since there will be scrutiny about how they respond during this critical time — and it will dictate public perception for many years to come?

Mr. Horacio: Insurers must safeguard the interests of their clients and advise them on the scope of the coverage. They must communicate that the coverage is not infinite but rather has limits in terms of the risks covered, amount insured, and the origin of the claim. There are doubtful cases but insurers should be flexible enough and protect their client from damages. It was not possible to predict COVID-19. Both Life and P&Cs have been affected and have huge arrears to be paid. 

On the other hand, claims processes need to be more transparent. They should adhere to the compliances of the insurance companies. In these times, selling agents and insurance brokers should be more flexible and build close relationships with the clients. They should explain to them the possibility of the claim they are trying to reimburse. In Latin America, we don’t have many claims related to business interruption. That coverage is not very common here. 

Especially in Argentina, businesses have slowed down due to lockdowns. The claims ratio in this area is going down but claims in life insurance policies have increased a bit. However, the impact here is not as big as the USA or Europe.  

Business Continuity in the time of Pandemics

What are some new business models that Insurance Carriers are considering to meet the expectations of life in ‘The New Normal’? More specifically, where is the new business going to come from, for Insurance, over the next two years?

Mr. Horacio: The outbreak of the COVID-19 pandemic has changed the dynamics of work culture, human relationships, and daily routines. Many companies including insurers are adopting digital solutions within their operations. Organizations are reimagining their business models to adapt to new paradigms to be more sustainable and profitable. 

The New Normal has given rise to new coverages in various insurance lines to cover risks originated by this pandemic or any possible future pandemics. 

For example, new clauses such as Loss of Profit due to business interruption and pandemics in Life and Health insurance, and worker’s compensation will now be included in the respective policies. Interruption of business processes entails new set-up and investment. Some other new coverages will also be introduced such as the cost of maintenance due to the non-use of offices, premises, or industrial facilities. Cyber Insurance will now be a must as most of the workforce is working remotely. The rate of cybercrimes was much higher in developed countries before the pandemic, but now even the developing countries are at risk. This will accelerate the need for Cyber Insurance in developing countries. 

Road to recovery

Many General Insurance lines are hit- Travel, Motor, Home – what will be the road to recovery for these Insurance lines?

Mr. Horacio: Since people are avoiding travel altogether, the travel and motor insurance industry are hit badly. Many customers in Argentina are asking Insurance companies to give some discount on the premiums. We will see some big changes in these insurance lines. Going forward, on-demand or pay-as-you-use policies will prevail more in these insurance lines. 

Role of AI in pandemic crisis management

Before the Pandemic crisis began, technologies like AI have been instrumental in modernizing the business of insurance and advancing their digital transformation. Where are some of the biggest gaps being exposed to insurance organizations, and How is technology going to solve these problems?

Mr. Horacio: Going forward, AI along with IoT and other technologies will play a crucial role in the Insurance industry as a whole. They will rely on statistical analysis of large databases to predict future behaviors. The new challenge is how to incorporate unknown risks into the existing models to be able to properly underwrite and price risks, anticipate client behavior, facilitate complex operating processes, manage complex claims and detect possible frauds.

Financial assets are the main asset of an insurance company. They are under the influence of the volatility of financial markets. Technology here can help by analyzing different scenarios but the ultimate decision is in the hands of the banks. 

Challenges & opportunities in adoption of AI

Why Insurers hesitate to invest in AI?

Mr. Horacio:  Companies were investing in technology earlier, but now it has accelerated due to the unprecedented change brought about by COVID-19 pandemic. Not just the developed countries but in developing countries such as Latin America, I see a big wave of new investments in technology. Technology companies are also looking forward to this change. Insurers will eventually overcome their hesitation and invest more in AI and other technologies. 

[Related: 5 Challenges in AI implementation for Insurers]

Which area will see max Investment in AI- claims, underwriting, fraud detection, marketing in Argentina, and Latin American Insurance markets?

Mr. Horacio: Before the outbreak of the COVID-19 pandemic, investment in AI was more targeted towards claims, fraud, underwriting, back-office operations, etc. Going forward, predicting future scenarios will be a challenge. Historical data might not be useful here. Therefore, in the New Normal, all aspects of an Insurance company will have to be developed under the umbrella of AI.

Product Innovation

Consumers, now more than ever are seeking value-added experiences with the products & services they buy. How will these expectations amidst this Pandemic backdrop impact new product innovation within insurance? 

Mr. Horacio: Customers want a more palpable relationship with their insurers. Customer Experience is going to be a fundamental aspect during the purchase of insurance coverage. In addition to being simple, the purchase and subscription process will have to be perceived as a service that accompanies the client at every moment they need it. These additions will help insurers gain more information on their customer’s actions and behavior. Based on this data, they can dynamically adapt the coverage and pricing of the product. I call it — Dynamic-on-demand coverage. 

Challenges in Latin American Insurance industry

What are some of the technological challenges faced by Insurers in Argentina and Latin American markets operating in the New Normal? 

Mr. Horacio: Insurance industry for many years has been static but now is moving forward in many ways. The world including the Latin American Insurance is witnessing rapid development in terms of technology. The InsurTech industry is parallel to the Insurance industry. It aids in the development of the insurance companies. The whole world of insurance is making advances in technology. Different economics have different buying patterns for insurance products. One such insurance product that should develop is Microinsurance

Microinsurance needs technology, without which it is very difficult to manage. In a sense, the outbreak of COVID-19 was beneficial in accelerating these technological developments.   

[Related – AI can help bridge customer gaps for microinsurers]

Insurance buying behavior in the post-pandemic world

In a post-pandemic World, will insurance ever be bought offline? Or have we crossed the threshold for now buying policies purely online? 

Mr. Horacio:  Personal line insurances such as car, accident, personal, travel, microinsurance are mostly purchased online. In Argentina, 60% of the insurance policies are sold by traditional marketing and sales through brokers. However, in commercial, industrial, energy, transport, and large companies in general, the marketing and sales will continue the traditional ways but through electronic means. The use of IoT, sensors, drones dynamically monitoring the facilities and processes in different industries is increasing. Argentina, which is an agro-based country already has technologies such as drones and IoT which monitor the crops in place. AI will surely be crucial here to analyze the data and enable quick decisions in case of a fire or an accident.  

Wrapping up

Summing up — Mr. Horacio Sanchez-Granel shared valuable insights on the challenges in the Latin American Insurance Industry, how AI technologies can aid in policymaking and rise in dynamic-on-demand policies in the post-pandemic world.

AI is going to be essential for Insurers to gain that competitive edge in the post-pandemic world. Check out Hitee — an Insurance specific chatbot for driving customer engagement. For your specific requirements, please feel free to write to us at hello@mantralabsglobal.com.

More InsurTech insights from the industry stalwarts:

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