Thu. Dec 1st, 2022

When it comes to the future of mobility, are insurance prepared?

As mobility continues to advance, forward-thinking European motor insurers should change their business strategies to better serve clients who are environmentally sensitive and tech-savvy.
July 21, 2022
Over the course of many decades, population expansion and a rise in the average income per person in Europe were followed by an increase in the total number of kilometres travelled and the number of automobiles that were acquired. However, mobility is now at a crossroads. The struggle against climate change has brought about changes in all areas that are tied to mobility, including the insurance industry. And as consumers get a greater awareness of new technology, such as autonomous driving and connectivity, the automobile industry and motor insurers will need to modify their product offers as well as their methods of operation in order to remain competitive. The insurance business will face new problems as a result of these developments; nevertheless, it will also see new possibilities.

The intersection’s traffic circle

In 2021, authorities in Europe made tremendous strides toward their goal of reducing the emissions produced by transportation. According to the European Commission, firms have pledged to reducing the amount of carbon dioxide emissions produced by passenger automobiles by more than half by the year 2030, compared with the levels that existed in 1990. This is in conformity with the European Green Deal. More than 150 cities in Europe have already implemented access limitations, such as limiting the use of private vehicles in some regions, and it is anticipated that the worldwide adoption rate of electric vehicles will reach about 50 percent over the course of the next decade.

The flow of traffic will also be made easier thanks to new technology. For instance, the first Level 3 road congestion pilots have the ability to monitor traffic bottlenecks and briefly switch the car over to autonomous driving mode. It is anticipated that level 4 highway pilots, which are able to monitor traffic and drive autonomously at greater speeds, would be allowed for use in privately owned cars by the latest year of 2025. When that time comes, it is projected that seventy percent of all newly manufactured automobiles will be linked “smart” cars. Additionally, self-driving taxis are already operating in places such as Phoenix, San Francisco, and Seoul, and they can be found on the highways there. By the year 2040, it is anticipated that they would account for around two-thirds of all passenger kilometres travelled in China. Within the next several years, it is anticipated that these kinds of cars will also make their way onto the roads of Europe.

Owning a vehicle is still the primary need for achieving individual mobility. On the other hand, the consumer market is now more receptive to innovative mobility options. Between 2016 and 2021, the number of trips that were booked electronically, also known as e-hailing, increased by a factor of three. Additionally, the micromobility sector, which includes small electric vehicles, public transport, and shared services, increased by a factor of sixty percent in 2021 alone. As these patterns continue, an increasing number of individuals will give up automobile ownership in favour of using various other modes of transportation.

The implications of these changes for insurance

The market for insurance will continue to develop in tandem with the mobility industry. For instance, it is anticipated that there would be a considerable reduction in the number of claims filed in the years to come. At the same time, when accidents do take place, claims will be more substantial because of the high cost of replacing components, such as sensors in car bodywork or batteries in electric vehicles. This is because accidents are more likely to occur with autonomous vehicles. More drastically, as fleet enterprises and micromobility expand in popularity, personally owned automobiles will become less popular, which will substantially lower the major business category for most motor insurance. Moreover, micromobility will grow.

Car insurance rates are expected to decrease in the near future, and in order for insurance firms to compensate for this loss with new business models, they will need to create new strategies to deal with this change. If responsibility is moved from the driver to the manufacturer, as some political leaders are considering doing, auto insurers will need to get used to a changed risk portfolio. This is something that will affect them directly. Insurers will need to cultivate new capabilities in product creation, as well as in the actuarial, sales, and customer service departments, in order to react to the new environment.

The sooner the insurance sector can get itself ready for big adjustments in business goals, the better. This is true across the board in the insurance industry.

Where do we even begin?

A transformation of this kind, fortunately, ushers in possibilities that agile service providers may exploit to their full potential. It has been estimated by industry professionals that by the year 2030, the global mobility insurance business stands to gain anywhere from $30 billion to $50 billion as a direct result of vehicle connection alone. That sum would constitute more than 10 percent of the premiums charged at the present time.

The following is a list of four examples of innovative data-driven ways that businesses may employ to capitalise on the opportunities presented by changes in mobility:

Pricing dependent on the customer’s actions. Policyholders have access to enticing prospects to save money thanks to premiums that are calculated based on driving behaviour (“pay how you drive”) or vehicle usage (“pay as you drive”). If movement and vehicle data are utilised to make further offers, then this strategy has the potential to be profitable over the long run.

New options available inside the ecosystem. Car manufacturers are becoming an increasingly essential partner in the automotive industry as direct sales of motor vehicles continue to rise. The tendency toward acquiring a car and insurance from a single source is known as an embedded offer. However, these companies should also be regarded prospective rivals because of this trend. It is important for insurers to work hard to develop relationships within their ecosystem that are mutually beneficial. For instance, they may include a streamlined insurance provision into the process of purchasing and selling vehicles by using a paperless digital workflow.

Products of multimodal insurance companies. Providers have the ability to react to the increase in the range of mobility options with the most suitable insurance solutions. For instance, they may provide just one product category for driving everything from personal automobiles to borrowed electric scooters to rented automobiles when on vacation. Because of this solution, the organisation is able to reach new consumer groups who previously may not have been familiar with their insurance services.

services available “on demand” 39 percent of first-time car purchasers want to engage extra digital services as soon as they have their new vehicle. There is a fifty percent uptake of these supplemental services among owners of luxury brand automobiles. By offering extra services, such as foreign insurance, insurance for passengers, or active driving instruction, readily accessible at the touch of a button, insurers have the opportunity to capitalise on the robust demand that exists in the market.

Insurers may make plans to capitalise on new business prospects in the medium term by using the insights and data they have gathered from mobility insurance solutions in order to expand their operations into other parts of the mobility ecosystem. Among the numerous available choices are fleet management, the buying and selling of old automobiles, the market for electric charging stations, and the automotive repair and maintenance industry. Aggregators, who often stand to profit by uniformity, are one kind of business that may benefit from more variety.

In order to successfully navigate the process of change management, motor insurers will need a high level of both daring and innovation. Companies who adapt to the upheaval in the transportation industry quickly and effectively will emerge stronger than their competitors. In addition to this, they will be an essential component in the development of the next generation of mobility.

In the McKinsey Zurich office, Stephan Binder is a senior partner, Ulrike Deetjen is a partner in the Stuttgart office, while Stefan Pohler is an associate partner, and Kersten Heineke is a partner in the Frankfurt office. In addition, Stefan Pohler is an associate partner in the Stuttgart office.

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