As vehicles become connected, autonomous, shared, and electric (aka the CASE evolution), incumbent insurers and new entrants are experiencing myriad threats and opportunities. Simultaneously, industry-wide digitization (driven by customer expectations aligned with other sectors) is intensifying competition. This Viewpoint details key aspects of the shift caused by CASE, including business model implications and clear opportunities for key market participants.
For decades, insurers had an exclusive advantage. Risk transfer consisted of three capabilities: (1) understanding customer needs, (2) accurately assessing and pricing risk, and (3) having access to abundant, cost-effective capital (to hold risk). Insurers had easy access to customers via captive agents and intermediaries, a strong understanding of their clients’ risk environments, plenty of actuarial and risk assessment expertise, and a diversified risk portfolio that allowed a cost-effective way of holding risk.
These advantages are gradually becoming accessible to other industry players (see Figure 1). For example, automotive OEMs have broadened the scope and depth of user interaction through in-car/online/offline experiences, maintaining exclusive control over various driver behaviors and vehicle data. OEMs are now equipped with capabilities that translate into higher underwriting profit and investment return through existing access to vehicle data and internal capital.
Other examples include digital insurers focused on auto and digital brokers (typically price-comparison websites) that create new ways to access customers. In Japan’s P&C market, nimble motor-specialist insurers can succeed in favorable risk segments, potentially leading to higher profitability compared to monolithic all-line carriers. OEMs’ advanced capabilities in assessing driver-behavior data and identifying more favorable risk segments could give them an advantage over incumbent players, despite their less diversified risk portfolio (see Figure 2).
The CASE evolution is fundamentally reshaping transportation. Figure 3 shows how vehicles are becoming more connected to digital networks, more autonomous via augmentation and replacement of human operations and decisions, shared through mobility services, and electrified (changing vehicle structure and the energy supply chain).
Although the timeline for reaching certain CASE evolution milestones will vary across markets, we expect the following trends to emerge (see Figure 4):
The CASE evolution will cause the motor insurance market to contract significantly over time. Because motor insurance in many developed nations is an established and highly competitive market, further contraction of risk demand could put pressure on margins and eventually crowd out incumbent players.
In many cases, vehicle ownership will change from individuals to businesses, with insurance embedded through car-sharing services. Sharing platforms will be the policyholders, aggregating end-customer access, and insurance products will be distributed via these platforms, requiring insurers to embed products in (and integrate with) customer-access platforms. These developments imply a shift of traditional motor insurance from retail to fleet and commercial insurance. In the retail sector, we expect an ongoing increase of on-demand and pay-per-use insurance models with coverage provided only when a vehicle is in use.
The frequency and severity of accidents will decline as autonomous driving replaces human-led driving behavior. Improvements in advanced safety devices will lessen impact and damage when clashes do occur. However, EV repair costs are higher than internal combustion engine (ICE) vehicles. Batteries are a critical EV component, and repairing the battery while salvaging the remainder of the vehicle increases repair costs. Anecdotally, we are learning that removing damaged batteries is difficult when they are tightly integrated into the vehicle body (to achieve production efficiency and maximize in-car space). In some cases, battery damage results in a total loss, creating a higher premium of ~20% for EVs compared to similar class ICE vehicles.
As the traditional motor insurance market declines, new risks will emerge linked to the connected and shared nature of vehicles in the future. For example, connected vehicle features integrate with out-of-car services via networks, exposing them to any cyber risks the networks themselves face. Vehicle malfunctions caused by hacking or malware will trigger manufacturer product liability.
Mobility services have the potential to go beyond land transportation in the future. For example, Japan is looking to commercialize flying-car services in time for the 2025 Osaka Expo, transporting visitors to various expo sites in electric vertical take-off and landing (eVTOL) vehicles. A consortium consisting of an insurer, travel agency, bank, and trading house will be on-site to demonstrate the commercial feasibility of eVTOL vehicles, including new forms of aircraft insurance.
There are several ways insurers can build competitive advantage and grow their business, despite the predicted decline in traditional motor risk:
OEMs can leverage existing strengths to build competitive advantage in the changing insurance landscape:
The CASE evolution will lead to significant advances in technologies and applications. It will also greatly influence the way insurers add value to customers and society. CASE concepts will eventually come to fruition, whether it is autonomous driving, flying taxis, or car sharing as the primary mode of car usage. However, the timelines for CASE milestones will be unique across geographies, and there are differing views about these milestones within each market. Since success in new market opportunities requires a shift in strategy and investment, both insurers and OEMs will need to consider several scenarios to determine strategic options (see Figure 5).
The CASE evolution will widen our definition of mobility. In many cases, resulting technologies and data will reduce market inefficiencies. Both insurers and OEMs will come across opportunities that can be maximized by collaboration and efforts to overcome each other’s shortcomings. What first appears as intensified competition resulting from the changing mobility environment can become an opportunity for partnership, eventually benefiting customers in the form of lower insurance costs, adequate coverage, and greater convenience. Insurers and OEMs should: