AI, EVs and auto tech pose a threat to traditional auto insurance
In addition to tech, carmakers’ vertical integration of the entire ownership experience could shake up the auto insurance space.
Some of today’s biggest innovations in automotive technology are also some of today’s biggest risks for traditional auto insurers. Smarter cars are safer cars, but they are also significantly more expensive to service, meaning higher premiums for consumers.
Electric Vehicles require a new skill set to service them, skills which are in short supply increasing risks and costs to insurers’ most frequent claims.
Additionally, next-generation automakers are vertically integrating the entire car ownership experience, threatening traditional revenue streams for insurers. Fortunately, insurers can utilize some of these same tools to radically modernize their claims processes and deliver better service at lower costs, strengthening loyalty and retaining customers in the face of dramatic industry changes.
As technology advancements create increasingly smarter cars, the driving experience has become safer, with new safety technologies reducing both the frequency and severity of accidents. But these new capabilities haven’t yet translated into lower premiums — in fact, premiums are actually higher on smarter cars, according to a study by The Zebra. The problem is that these new technologies make parts far more expensive to replace. For instance, a regular bumper may cost up to $700 to repair, while one equipped with sensors could cost as much as $2,500.
In response to these higher costs, advanced technology automakers, such as Tesla, are looking to control costs and the customer experience by offering their own insurance, refusing to work with third-party collision centers and building their own roadside assistance service networks. Tesla, in particular, is essentially creating a completely vertically integrated system for retail auto.
In addition to controlling the end-to-end customer experience throughout their ownership life-cycle, this integration provides a big advantage in the collection of huge quantities of data to speed up and inform the claims and roadside assistance process. Automakers use this data both to improve their customer experience continuously and to improve their efficiency, reducing costs. This virtuous cycle leads to even more data collection and improvements.
‘EVs are a completely different animal’
Electric vehicles add another wrinkle to the changing auto insurance landscape. Currently, electric vehicles (EVs) are a relatively small subset of the market, accounting for just 2.6% of new cars sold in 2019. However, that number is growing at 40% per year, and growth is expected to accelerate as new vehicles serve a broader market.
EVs are a completely different animal from a gas-powered car or even a hybrid, and they require a new skill set to service at roadside, especially when damaged. Mistakes can cause injuries to an operator and damage a vehicle. These new skills are still rare among towing and roadside operators, leading to increased wait times and decreased service levels for these vehicles. Given their price point, it’s likely that carriers’ most affluent customers are highly represented among their owners.
Roadside assistance is a huge driver of customer satisfaction for insurers because it’s by far the most common claim and most frequent touchpoint. So all of these industry changes put insurers’ long-term relationships with some of their best customers at significant risk. When customers call for roadside assistance, they’re typically in a very stressful situation, so if they receive high-quality help quickly that addresses the problem, they’re likely to feel great about their insurance carrier and be more likely to recommend their insurer to their friends and family. If they have a bad experience? Not so much.
If insurers are to respond to this threat and avoid getting squeezed out of their market by automakers’ new technologies and business models, they need to begin taking advantage of the same technologies that companies like Tesla are using, such as artificial intelligence (AI) and advanced data analytics, to improve efficiency and provide a superior customer experience. And they need to ensure that their most frequent customer touchpoints, including roadside service providers, are at the forefront of engaging with new and changing technologies.
Accelerating the claims process
Insurers are already employing AI to process claims, using natural language processing to pull out the relevant information and automate much of the approval process. But there’s still a substantial gap when it comes to getting information from the vehicle owner after an accident. The self-service tools that insurers provide motorists today aren’t terribly effective. Vehicle owners are often shaken from the accident and not in the best frame of mind to report damage. Plus, for the vast majority, this will be the first time they will have ever used the reporting app, and they have no experience taking photos of an accident scene, so it’s likely critical information will be missing.
Towing and roadside assistance providers, however, are already on the scene of vehicle accidents. Already intimately familiar with damaged vehicles, they can be trained to follow the process for submitting information and data entry will become even more precise with experience. As a result, the insurer can get accurate information within an hour following a collision. And because the data has been submitted using the insurer’s app, it can be readily formatted for AI analysis of both text and images to speed the process, eliminating days of cycle time and reducing costs.
Using AI and analytics to accelerate the roadside assistance process
AI and analytics can go a long way towards improving the experience by automating the process. Working from a list of pre-approved, verified and vetted tow operators, the AI can identify the provider closest to the customer and send a request with pricing immediately. In this way, the customer gets back on the road faster, the tow provider gets a job at a fair price, and the insurer sees its NPS scores and policyholder retention soar. Everybody wins.
Invest in training tow providers to service electric vehicles
The tow industry needs to begin investing now so they will not be left behind as the EV market grows, and insurers should consider incentivizing and perhaps requiring that tow providers in their network possess EV skills.
Technology is disrupting nearly every aspect of the automotive industry, including insurance. But technology doesn’t have to be solely a threat — with the application of the right technologies, they can also provide competitive advantages that will enable carriers not just to survive, but thrive in this emerging new world of automotive insurance.
Corey Brundage is CEO & founder of HONK Technologies.
Opinions expressed here are the author’s own.
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