Will Self-Driving Cars Kill the Insurance Industry?
The insurance industry is experiencing one of the biggest upheavals since its birth from the ashes of the Great Fire that leveled London some 350 years ago. Innovations like IoT, machine learning, cognitive computing and blockchain are blurring industry boundaries, linking data from devices in cars, homes, buildings and on people to actions that change lives. Until now an abstraction, insurance is poised to actually connect with and influence reality. I recently spoke with Robert Cummings, Global Head of Core Insurance at SAP, who talked about what insurance looks like in a connected object-based, services industry.
“In the old model, you insured your home or car based on predetermined risk factors, and received compensation for any losses. But the contract you signed with the insurance company wasn’t actually intended to physically protect you, your house or car,” said Cummings. “In this new insurance industry model, there are monitoring, connected technologies that can help you to drive safer, or make you healthier and better protected from crime or disaster when you’re at home or work.”
Self-driving cars and other innovations have the potential to reshape time-honored liability norms. Instead of aggressively selling insurance policies of old, insurers need to wrap products and services around the customer experience with different value.
“Insurance companies are in a bit of a panic because as cars get safer through air bags, self-driving functionality and other innovations, risk goes down on the one hand but also the responsibility gets shifted to the manufacturer. Some car manufacturers have even said that they see no choice but to build coverage directly into their product,” said Cummings. “Insurers need a connected platform to support a new business model.”
IoT spawns connected services
Many insurers have begun working with partners in sectors like health care, sports, financial services, transportation and security. Birgit Fien-Schmalzbauer, Head of Research & Innovation, Industry Business Unit Insurance at SAP, gave me a glimpse into how the convergence of physical and digital worlds is expanding opportunities.
“We’re seeing huge demand from customers and insurers for micro-insurance services. Someone going on vacation can add security protection for their connected home, or adjust insurance coverage for their connected car, as well as medical coverage for their connected health,” she said. “These are high-value services allowing customers to easily adapt coverage and insurers to generate revenue. For example, the SAP HANA Cloud Platform for Connected Home revolutionizes the insurance industry’s business model while increasing customer satisfaction with new, high-value services.”
Connected cars are rapidly traveling beyond in-vehicle sensors to collect driver data for usage-based insurance premiums – pay-as-you-drive and pay-how-you-drive. Quality data has the potential to help insurers streamline claims and improve fraud detection. What’s more, insurers can offer services like roadside assistance, emergency calls and local based offers.
Connected health and lifestyle is another burgeoning area, where intelligent data triggers actions that improve people’s lives. This reflects the overall shift to a more holistic medical model involving preventive care, coordinated disease management and patient/provider communication. One example is Accu-ChekView from Roche Diagnostics, a combination glucose monitor, wearable fitness tracker and SAP mobile app. Physicians can monitor a patient’s vital signs and blood sugar level in real time, and provide care remotely as activity levels and readings change.
Jump-starting an innovation culture
Fien-Schmalzbauer told me that another major challenge insurance companies face is the best way to foster an innovation culture. SAP Innovation Management is designed to encourage employees to participate in ideation through collaboration with experts company-wide.
All of these innovations fundamentally change not only the old guard of the insurance industry, but many others as sectors blur and reemerge to reveal unexpected alliances and opportunities. If insurance companies can embrace reinvention, the industry will be well-positioned to last another 350 years with or without self-driving cars.
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