It is no secret that the digital transformation is poised to make a big impact on the insurance industry, possibly greater than any other major industry. And while always it’s important to evaluate the big picture, it’s also crucial to investigate individual disruptors and discuss how they might impact our industry. Autonomous cars are a popular innovation that certainly seem to have captivated the imaginations of manufacturers, commercial businesses, and ultimately consumers.
The future of autonomous vehicles
Autonomous capabilities already exist in cars today, and semi-autonomous vehicles are coming in the near future, likely within 12-18 months. By the end of the decade we expect to see full autonomous capability, which is already in the prototype phase and on the path to commercialization. In January 2016, the National Highway Traffic Safety Administration (NHTSA) announced a commitment of nearly US$4 billion over the next 10 years to developing safe vehicle automation. This isn’t a just a possible disruptor to the insurance industry – autonomous cars are coming, and they are going to impact how insurers run their businesses in a big way.
According to federal statistics, about 400,000 large trucks are involved in accidents every year; nearly every crash is the result of human error. Government and transportation experts believe that the move to autonomous vehicles will eliminate this human error and therefore significantly reduce the number of accidents that occur. This is poised to change the risk and pricing model for insurance as the risk involved in daily activities will be reduced or even eliminated.
Changing insurance when risk is evolving
What does the insurer of the future look like—and what exactly is it insuring? Automated platforms will almost definitely lower premium dollars. But while premiums begin to go down thanks to automation, there is an opportunity to actually grow revenues in the early phases of the transition for those who don’t opt into new technologies, or to simply keep premiums flat as the new technologies develop.
For consumers and businesses who do opt into new technologies – and those numbers will almost certainly grow as the technologies become more widely available – we will need to change our core offerings and policies to meet new risks that may be caused by automation (adjacent risk). But this won’t happen quickly or easily, since the core policy and administration systems in insurance are some of the most complex throughout the entire financial services industry.
While no insurer can predict the future, one thing is certain: Insurers need to become as nimble and adaptable around the risks they are covering. The days of covering only the traditional risk in the big four (Life, Auto, Home, Commercial) are rapidly changing.
Answering disruption with innovation
So like the disruptors our industry is facing, we need to design the business from an outside-in perspective, looking at all interactions through the eyes of the customer to ensure that processes deliver maximum value with minimum friction. We need to look internally at our own systems and evaluate whether they are able and ready to ride the wave of change and bring new disruptors to market. We need to look at the diversity of skills within our own staffs and determine whether we’re employing enough data scientists, innovative thinkers, and people ready to work with the new and changing landscape. And most importantly, we need to keep our eyes focused on the future.
Insurance is a historic industry, rooted in centuries of tradition and infrastructure. It can be hard to shake off the remnants of processes that have made us successful for decades. But we must look forward, beyond the innovations of today, and continue to offer products that will help our customers in the years ahead.
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