Simon Axon, EMEA financial services industry consulting director at Teradata.
Historically, insurers have struggled to draw a profit from auto insurance policies, but the current economic conditions has only made this harder. From supply chain issues, inflation, and the rising number of claims, they have all put an enormous strain on operating costs. Whilst motorists are faced with premium increases of 16 percent or more this year, insurers cannot raise rates significantly due to the current cost-of-living crisis.
Looking inwards, the insurance industry’s own structure is changing. Recent forecasts from McKinsey found that technological advancements are likely to have a significant impact on the auto insurance risk pool in the U.S. by 2030. This is expected to leave traditional insurers with a shrinking share of value. On the other hand, new technologies, including AI-driven opportunities, are enticing new customers with innovative products.
In this, there are big technology players who can use their strong expertise in data. They want to offer seamless, integrated, and high-value services to customers. Also, some auto manufacturers and brands already use sensor data in order to tailor their relationship with drivers. In addition, there are neo-banks and other emerging fintech companies, like Revolut in Ireland, who offer discounted policies to safer drivers based on the data which have been collected from the telematic devices installed in cars.
The drive to innovate
There is currently a race to provide more personalised, flexible, and cost-effective policies to customers but traditional insurers are slow to make the necessary moves. However, traditional insurers have recognised that there is a need to offer tailored, differentiated and value added services to retain profitable customers. In the same vein, IDC found that 72 percent of firms surveyed are prioritising digitalisation, and over half are investing in products that engage drivers more often, such as speed alerts, in order to offer more tailored services.
However, only a few insurers have prioritised the real-time experiences that those in the automotive and retail sectors have already deployed. There