Other parts of this series:
New technologies can solve some digital trust issues for insurers. However, if mature insurers aren’t ready to serve emerging industries, someone else will jump in.
As part of its value proposition, electric-car maker Tesla has offered up the concept that autonomous vehicles—at least those it makes — are significantly safer than traditional driver-driven cars. If that assumption is correct, lower claim frequency and severity should reduce claim costs and be reflected in lower premiums for autonomous-car coverage. The automaker is starting to put this in practice in Asia, where it will provide a package that includes the insurance and maintenance within the price of the car.
The questions remain, though: Who will actually insure driverless cars? What underwriting criteria will they use? In the unchartered world of autonomous vehicles, will mature insurers adapt to these new and different risks — or will they leave it to startups to figure it out?
Tesla CEO Elon Musk says he prefers to partner with existing insurers, but his company will assume that role if necessary. He may not have to, though. Root, an Ohio-based insurance startup that shares Musk’s view, is willing to offer motorists a premium discount for the miles they turn on and use Tesla’s Autopilot. Although Tesla continues to refine Autopilot and its Autosteer component, Root CEO Alex Timm said he was impressed by a report from the National Highway Traffic Safety Administration and believes the discount is warranted now. Since Root only operates in Ohio and Arizona, access to the discount is limited, but new concepts have to start somewhere and successful ones spread.
While autonomous vehicles can certainly affect the auto insurance market, the RAND Corporation anticipates the more substantive risk could be to auto manufacturers facing product liability when accidents do occur. How these companies — and the carriers who insure them – will ultimately fare from accidents will likely depends on matters like the technology choices manufacturers make and how they promote their products, but industry standards and state regulations will certainly come in to play.
Autonomous cars are, of course, just one of the changing ecosystems that insurers must consider since technology is fueling big changes in just about every segment of insurance. Accenture’s Technology Vision for Insurance 2017 documents an industry that is resilient but also needs to take action.
Insurers have not been shy about working together to improve their industry. They have shared data to help identify risk potential, lobbied state and federal legislators to provide regulations necessary to do business, and adopted technology standards to enable efficient policy sales and service. Now, as they recognize that much a bigger change is in the wind, industry leaders will join with other forward-looking peers to help establish appropriate industry standards and encourage government regulation. Concurrently, they are adopting their internal policies and re-examining the social contract they have with their workforce and customers to align internal and external needs, all to enable innovation while mitigating risk.
Interestingly, if we look back at Accenture’s Technology Vision for Insurance 2016, we find of that Digital Trust was one of the major trends confronting the insurance and other industries. That’s not surprising, since almost half the insurers we surveyed last year reported that their organizations had suffered more than twice the number of privacy or security breaches as they had two years before. Since that time, an arsenal of four important technology tools has emerged – all of which address aspects of that issue:
- Blockchain, the distributed database that also underpins Bitcoin, is clearly the most mature of these newer technologies. In fact, about a third of insurers are planning to use blockchain within the next two years, while another 36 percent have it on their agenda. The B13 insurance consortium has grown from five to 11 insurers and reinsurers, all banking on blockchain’s capacity to provide a useful, transparent, shared record of information that will streamline data transfers, transactions and communications. The immutable character of the technology assures that records cannot be altered, providing an important level of security and governance, especially desirable in reinsurance arrangements.
- Smart contracts involve rules-based computer protocols that can negotiate, verify or enforce a contract. It can include rules that govern exchange of value. A major benefit is that they eliminate the need for a trust third party.
- Differential privacy is a statistical technique that helps protect the privacy of individual data subjects while preserving the accuracy of insights gleaned from large numbers of data subjects. It is especially important for organizations that must preserve privacy.
- Homomorphic encryption enables data exchanges and transformation while retaining encryption throughout the process. Storing datasets this way protects it – and the organization — from unplanned disclosure, but entities with a private key can still run analytics on the data and see results.
The charting has begun. As these technologies are refined and work their way into mainstream use, they can help insurers secure data and establish a high level of digital trust. At that same time, insurers need to secure their role in protecting the many new technologically driven industries. That requires setting standards and advising regulators.