And why this is a reason for existing insurance companies to keep a pace with developments in IT.
Investors taking part in electric car company Tesla’s second-quarter earnings conference at the end of July this year were treated to big news: as well as reporting its fourth consecutive profitable period – the longest streak of profitability in the company’s history – Tesla’s eccentric CEO Elon Musk announced that he was planning on moving into the insurance business.
It’s not the first time Tesla have attempted to break into the insurance market. Tesla drivers have long complained of the higher costs owning one of Tesla’s products incurs, so Musk has a special interest in finding ways to offer potential customers cheaper policies. The company first began talking about insurance in April 2019, a few months later launching an insurance website in California offering rates which it claimed were up to 20% lower than the competition.
This initial attempt was afflicted by teething troubles, however, and was taken down after only a few hours online for an “algorithm update” after customers complained they were being quoted offers which were actually higher than the third-party insurance plans they already possessed.
But now Tesla is preparing to launch what Musk has described as a “major insurance company” which will use the data harvested from its vehicles and the driving profiles of their owners to assess the probabilities of accidents and offer cheaper monthly premiums than traditional insurers. Connected cars and the Internet of Things are no longer a novelty in insurance, but given its proprietary connection with the hi-tech systems powering its vehicles, Tesla would likely have access to even more useful insights into driver behaviour and safety habits. The company plans to launch the initiative – which it again claims will offer savings of up to a fifth over competitors – in selected US states by the end of 2020, eventually rolling out the service nationwide.
At the same time, online shopping and streaming giant Amazon has also been making moves into the insurance business. In India, the company is offering customers insurance for cars and motorbikes through its extremely popular Amazon Pay service and private firm Acko General Insurance.
The service will offer Amazon Prime members extra benefits, including exclusive discounts, and the company claims customers will be able to purchase insurance online in less than two minutes and without paperwork, with other incentives including paperwork-free claims, one-hour pick-up and three-day claim servicing, all of which can be paid for through Amazon Pay, with policy documents accessible through customers’ Your Orders page.
So what are the implications of these initiatives? Insurance has often proved to be a difficult sector to break into, but both Musk and Amazon CEO Jeff Bezos are famous for the way their tech innovations have ‘disrupted’ traditional industries. Musk says that offering competitive policies comes down to possessing accurate information. “Are you forced to assess people statistically looking in the rear-view mirror?” he asked at the same conference, “Or can you assess people individually, looking ahead with smart projections, and inform the driver (…) what actions they can take to reduce their insurance.” Data, it would seem, is king.
All the more reason, then, for existing insurance companies to keep apace with developments in IT so as to strengthen their relationships with customers and offer them more value, factors which are both vital for ensuring the industry’s continued health. Because whatever the disruption of the tech giants ends up meaning for the insurance business, the key remains flexibility, speed of action and, most importantly of all, keeping the customer at the heart of everything.