This is a guest blog post by Henning Rokling, founder of Startle and freelance consultant on digital transformation.
In 2012 Google started live trials with the Google Self-Driving Car. Since then more than a million miles has been travelled by their fleet of autonomous vehicles. Initially perceived as highly ambitious, automotive industry and tech industry execs now agree, assuming legislators catch up, that autonomous vehicles will be available to consumers within 5-10 years. This will have great impact on the automotive and insurance industries.
Perhaps the greatest evidence that autonomous vehicles is happening is that everybody’s getting in on it. From the Sharing Economy, entrants include Über and Lyft. The automotive industry has Tesla, as well as Mercedes (Daimler) and other old timers from both US and Europe. And not surprisingly, from the high-tech side, Apple has decided to join Google in the race. A notable absence is Avis, Hertz and other rental-car companies.
As society moves towards driverless cars we stand to reap a multitude of benefits, including decreasing traffic congestion, fewer accidents, improved mobility for children, the elderly and disabled, and maybe even the end of Parking-as-a-Problem. The advantages are obvious.
However, the biggest change could be with ownership, moving from owning your own car to a Pay-As-You-Go-model accessing fleets of cars when you have transportation needs. This change of ownership model would massively impact the business model of the car industry as we know it, doing away with sales and distribution. Mercedes would operate the Mercedes fleet, Über its own fleet of Über cars, alongside Apple, Tesla etc.
Cars will drive as they’ve been programmed to do – and autonomous vehicles will shift the liability of accidents from human drivers to the manufacturers. Self-driving cars obviously need to be insured, but fleet operators of autonomous vehicles would be so large that they’re able to arrange their own re-insurance syndicates.
Slowly eroding premiums from Auto Insurance will be a reality for Property and Casualty insurers when this scenario starts playing out over the next ten years.
After a busy couple of months with many interesting developments in fintech, I’ll be taking a couple of weeks hiatus from updating my blog for the summer. Feel free to check out my previous posts from the last couple of months in the meantime.
Not only are established companies from converging industries challenging the existing ecosystem, but the number of unicorns in fintech steadily increasing, with P2P Lending as one of the areas of high potential for disruption as well as bitcoin and blockchain as a potential game changer. I have also given a reminder that regulations are not always a constant, and Iceland’s proposed change in the monetary system is a brilliant example.
Ever since the acquisition of BeatThatQuote in the UK in 2012 there has been rumors of Google entering the insurance industry. I looked into this subject myself almost a year ago, and concluded that is not a question of whether Google is going to take a position in the future value chain for the insurance industry, but which position Google wants to take, and how this will affect incumbents. Earlier this year, Forrester analyst Ellen Carney also uncovered that Google had filed for a license to sell insurance in half the states in the US market earlier this jyesr.
This makes perfectly sense for Google as they have in collaboration with BCG India predicted that 75 percent of all insurance purchases will be online by 2020. In most cases this customer journey begins with a Google search, and already insurers are paying up to $54 per click for car insurance quote searches. With a comparison service based on cost-per-acquisition (CPA) this is surely a major step towards a strengthened position in the financial services value chain.
When it comes to collecting and organizing information, Google is well on its way to establishing its hegemony through the registration of 6 billion daily unique searches and indexing of over 50 billion web pages (2013). What remains to be seen is how this information is being made universally accessible and at what price. One of the industries that has particular advantage of access to the world’s information is insurance.
So far, Google has managed to capitalize on this information through keyword advertising through AdWords. A glance at the keyword advertising data shows that insurance and other financial services are the top spenders, with a combined annual spend of $4 billion according to Google AdWords and Wordstream statistics. The absolute greatest vertical in Google’s AdWords revenue is auto insurance, where State Farm, Progressive and GEICO alone accounted for $110 million in keyword advertising revenue.
In a recently published report in cooperation with BCG India, Google concludes that insurance is among the top five product categories in which the web is the dominant purchasing channel in addition to travel, digital media, ticket purchases and books magazines. Common for the first four product categories is that the traditional sales channels have long been redundant as a result of digital disruption. The same report predicts that 75 percent of all insurance purchases will be online by 2020. If these predictions are accurate, it will give Google a dominant position as the primary sales channel for the insurance industry.
Is the insurance industry the next industry where technology with Google as a key player disrupts the existing value chain?
A review of Google’s acquisition activity and technology development provides an indication of what position Google is able to reach based on the insurance industry’s key revenue sources such as car, home, and life and health insurance.
Google made its first move towards the insurance industry back in 2012 with the acquisition of BeatThatQuote, the price comparison service for car insurance, for £37 million. Looking at the numbers, Google charges up to $54 per click for insurance quote searches. In addition to this Google already has real-time monitoring of traffic through obtaining metadata from all Android devices moving along major roads, and is able to give accurate traffic reports through Google Now.
The same real-time traffic information is potentially valuable analysis data for an insurance company. This hypothesis is strengthened by the fact that Google has taken initiative for the formation of the Open Automotive Alliance, which aims to promote Android as the standard platform for future entertainment systems, apps and other technology in cars.
The interesting question to ask is how the information obtained through smart metering and other household sensors can be used? A continuous and automatic monitoring of all electronics in a house is valuable information on an insurance object for both the pricing and settlement of claims. Connect this with the information already collected through Google Maps and Google Earth, and this would, for example, be the basis for a precise calculation of accumulated high risk in densely populated areas.
Google Glass is another area where Google has the possibility to create a position within the insurance value chain.
In January 2014, Google and the VSP, the nation’s largest insurance player in optical insurance, signed an agreement, subsidizing Google Glass with prescription lenses for VSP’s policyholders. This may at first glance be dismissed as a move to boost short-term sales of Google Glass, but rather it will provide ample opportunities for collecting insurance data such as real-time health information from each user of the device.
Accenture states that the industry has long abandoned its product-centric logic and is becoming increasingly consumer-centric. This leads to ever-increasing expectations and demands, as well as declining customer loyalty. Combined with a possible threat from new entrants such as Google, the analysis company SMA argues that the insurance value chain is facing fundamental changes.
The truth is probably somewhat less dramatic than what is claimed, as the industry already has a high degree of technology adaptation and has systematically developed digital channels, with GEICO and Progressive as good examples.
But despite systematic work on continuous improvement and incremental innovation, history shows that it requires a new mindset when an industry is exposed to disruptive innovation.
For the insurance industry this poses a number of challenges at a time when much of the focus and resources are tied up in compliance with the regulatory requirements of Solvency IIand ORSA, the search for alternative allocations of capital due to low interest rates and high complexity and technical debt in core systems.
My hypothesis is that it is not a question of whether Google is going to take a position in the future value chain for the insurance industry, but which position Google wants to take, and how this will affect incumbents.
