Reinsurers can benefit from transformative motor technology

The increasing use of technology to gather data and improve risk assessment is set to move business from retail insurers to commercial insurance providers—a transition that will also benefit reinsurers.

That is the view of Josep Celaya, chief innovation officer at Mapfre, who told Baden-Baden Today that a case in point is motor insurance.

The trend towards driving assistance and autonomous driving is shifting the liability from the individual driver or owner of the car towards vehicle and technology manufacturers or fleet managers such as Uber, benefiting commercial insurers, Celaya said.

“Insuretech will affect the core of the insurance business,” he (pictured left) said. The growing use of telematics in motor, gadgets gathering information on individuals’ health such as the Apple Watch or the rise of connected homes all allow insurers to obtain large volumes of data, which can enable a more precise risk assessment.

“Technology is going to change how risk is being measured and it will move the business towards risk prevention,” Celaya said.
For insurers this will mean that they need to understand digital ecosystems and platforms such as Android, Google, Microsoft or Apple, develop applications for the individual gadgets and adapt their retail business to the relevant digital environment, he explained.

“Platforms are possibly one of the most transformational trends we are facing as insurers because we have to rely on them,” Celaya said.

Insurers will measure a specific risk using the gathered data and the price will be tailored according to clients’ behaviour while some advice will be given as to how to mitigate risk, he said.

As a result of technological developments, retail motor premiums will likely decline as technology such as telematics and driving assistance reduces the risk and therefore the rates.

“Better risk assessment will have a major impact on profitability as premiums are set to decline. This is true as a global trend in the motor industry. Premiums are going to consistently shrink,” Celaya said.

On the back of this trend, while some insurers may be able to increase their market share, he expects a consolidation in the motor industry as a result of the technology-driven trend.

The shift can also mean opportunities for insurers—and their reinsurers—as the risk moves towards product liability as the manufacturers of driving assistance technology or autonomous driving technology will be increasingly responsible in case of an accident.

“We’ll see a reduction in business-to-consumer premiums, but a reinsurer or global player will benefit from an increase in product liability,” Celaya said. “The business is going to big global players,” he added.

In 10 years, he said, there might be a significant number of autonomous vehicles in some developed markets such as the US, representing between 5 percent and 10 percent of the total fleet.

The increasing volumes of data the industry will rely on will also grow the need for cyber insurance. Again, this is likely to benefit commercial insurers as cyber insurance is mostly part of the commercial side of the insurance business. Reinsurers may also benefit from cyber insurance growth.

“For global reinsurers there may be an opportunity as technology is changing the risk. Global premium may decrease in motor, but you have cyber risk growing and general risks linked to the product liability,” Celaya said.

He also suggested that an increasing volume of motor policies may be sold via the retail channels of car manufacturers.

“Manufacturers will play a key role in the interaction with customers, moving the insurance distribution process further away from traditional business-to-business to business-to-business-to-consumer, which is again likely to benefit commercial insurers.

A similar analysis can be done in other product lines where technology is driving change and configuring trends in product liability, Celaya said.

“The technology-driven trend is gaining momentum and at the end we will see major transformational changes in the insurance business,” he explained.

Josep Celaya is one of the speakers at the Intelligent InsurTech Europe event at the Grange Tower Bridge Hotel on Wednesday November 16. For more details, visit:  newtonmedia.swoogo.com/intelligentinsurtecheurope2016/agenda