A new report from Accenture (NYSE: ACN), the World Economic Forum and the World Business Council for Sustainable Development suggests that the automotive industry could increase the profitability of its value chain by 50% by achieving full circularity. There are lessons here for carriers and brokers as well as auto OEMs.

According to the new report, circularity can enable automakers and mobility providers to tap new sources of value beyond the limits of their current business models — with an opportunity to improve profitability across the value chain by 50% and generate lifetime revenues 15 to 20 times greater than the vehicle’s initial sales price. The greatest value pools would be achieved mainly through as-a-service models, including leasing/subscription, car sharing, and mobility as a service, as well as through lifecycle services of remanufacturing, repair and recycling.

This is a theme echoed for insurers in The Future of Auto Insurance- Connected: Embedded: Subscribed by Bryan Falchuk. He states products and services are evolving to the growing emergence of subscription services in which insurance is embedded. You will see below one GI carrier, Baloise Group, is ahead of the innovation curve. 

Certainly Elon Musk and Tesla take this "circularity" seriously. Not only is Tesla committed to being the insurer of choice for its own manufactured electric vehicles , it plans to offer insurance for other makes.And manage the lifecycle management of vehicles in the way the Accenture report describes leveraging data for underwriting, claims, body repair in its own bodyshops (US), vehicle design to reduce cost of repair, and taking back sold and leased vehicles to upgrade and return as robotaxis eventually.  . 

But claims is complex and carriers know how to navigate these complexities. Insurers are in a strong position to maintain a dominant position in auto insurance and whilst new full stack insurtechs often steal the headlines e.g Root, Lemonade-Metromile, and ZEGO, they still must deal with costs of acquisition, underwriting and combined ratios whilst managing cash-burn. I was taken by the innovative drive by Baloise Group to deliver mobility services with embedded insurance whilst watching a presentation by Patrick Wirth VP Ecosystem Mobility at the annual KBW Insurtech/Fintech conference in London recently.

Baloise kindly gave me permission to publish these slides from the conference. The first thing that struck me was the customer backwards rather than an insurer-centric view of the world. Patrick's team looked at customer needs and behaviour and the trend towards mobility as a service rather than the predominance of owning or leasing vehicles. Baloise builds, invests in, acquires and supports companies delivering the wide range of mobility services that consumers want and embeds insurance in each mobility service; cover, claims and service. Embedded and subscribed insurance. 

With this portfolio of companies the Baloise ecosystem spans a wide range of mobility options from one-time ride sharing to long-term  car rental and even renting out her vehicle when she isn't using it. And all the time with embedded insurance from Baloise.

Simple, fast, frictionless insurance. 

This is not a vision but delivered to customers today; the vision is far more ambitious and shows that incumbent carriers are as able as any disrupter to innovate, anticipate customer needs and deliver a wide range of attractive products and services.

For long we have heard of the advance and market dominance of auto OEMs offering and embedding insurance direct to customers. Matteo Carbone Co-founder and Director of the IoT Observatory has long debunked those doom-laden pronouncements. See "No sign of disruption (yet)! " 

That is not to say that competition will not make things harder for incumbent auto insurers which have traditionally competed on price. Not just from auto OEMs but new competitors like ZEGO .

Zego offers commercial motor insurance for businesses, from self-employed drivers and riders to fleets of vehicles, spanning pay-as-you-go insurance to annual policies. It combines tech with multiple data sources to offer insurance products that it claims save time and are more cost-effective. It earned its own insurance license in 2019, enabling it to build and sell its own policies, in addition to working alongside other insurers.

Technical/data integrations include those with companies in the ride-hailing space, such as Uber, Ola and Bolt, and in the delivery space, such as Deliveroo, Uber Eats and Just Eat. More recently, Zego has become a key partner in the U.K.’s burgeoning e-scooter rental market, partnering with companies like Tier, Voi and Dott.

Next up, the insurtech is betting big on offering insurance for fleets. “Over the past couple of years, Zego’s focus on powering opportunities for businesses has expanded to include not just self-employed drivers and riders, but also entire fleets of vehicles,” Sten Saar, CEO and co-founder of Zego, tells me, noting that 80% of new vehicles are now sold to commercial customers.

“This has been both a natural progression for the company, with the only real difference being distribution, as well as a focused effort, as Zego aims to capitalise on an ever-growing market currently underserved by the insurance sector”. 

Steve O'Hear in Tech Crunch 10th March 2021

ZEGO is a unicorn and shows continual innovation, digital maturity and sound financial management.

Tesla might or might not be an outlier when it comes to insurance vision and ambitions whilst today it is limited to cover in a select number of US States and overseas expansion will take longer. As Tesla grows it is facing the challenges of optimising manufacturing, overcoming supply chain challenges and even its famed AutoPilot is taking longer to develop and deploy than hoped. The Gigafactories in Texas and Germany are swallowing money, the China factory facing challenges from local competitors and potential government interference. Meanwhile gorilla in the market VW has its sights set on Tesla.

"Volkswagen can overtake Tesla to become the largest electric vehicle manufacturer by 2025, as the challenge of lifting production weakens its fiercest rival, the German group’s chief executive has claimed."

Read "VW chief claims carmaker can overtake ‘weakening’ Tesla by 2025" in Financial Times  

My point is that whilst Tesla plans to leverage the enormous real-time data from its proprietary vehicle stack to become an insurer it has enough on its plate whilst insurers have a clear focus and core strengths to leverage and maintain market dominance.

Baloise Group show the way forward and seem to have the edge over other incumbents like Admiral, Progressive, State Farm, Generali et al. Baloise has the same constraints of legacy technology mixed with deploying Guidewire over the last couple of years as other carriers like Admiral, Hastings Direct and NFU, Progressive and State Farm.. 

So it must be culture, vision, strategy, leadership, organisation and many other factors that makes the innovation difference. Best ask Patrick Wirth how whilst interesting to observe the organisational and strategic focus on the mobility ecosystem by Baloise.

And this is not fuzzy thinking! There are hard-headed goals in place

This takes time, planning and effort. The mobility project started in 2016 and the effort required is considerable. Technology vendors love to boast of easy, fast and agile deployment but in  truth it takes blood, sweat and tears! At Insurtech Insights Europe we heard UK insurer esure's  Chief Strategy and Transformation Officer Roy Jubray explain the massive amount of planning and hard work required to become the “Insurer of the Future”. It's not the simple stairway to heaven seen on many a vendor's website.  

Look at the amount of planning and ability to execute required by the Baloise team. 

There are lessons here for all carriers. In addition to adopting strategies like those of Baloise Bryan Falchuk argues that many carriers will partner with auto OEMs but that means consolidation as global auto OEMs will want global insurance partners and maybe just five or six global partners. See 

"The Future of Auto Insurance: Connected, Embedded & Subscribed"  

There are great challenges and opportunities for incumbent carriers, new full-stack insurtechs, auto OEMs as the market changes, electric and autonomous vehicles evolve and consumers driving/mobility needs and behaviours change. 

It makes it all the more important to choose the right technology partners to help face those challenges a topic I often write about. Many people in the industry found insight in this article

Creating value, finding focus and choosing the right technology partners 

Thanks to Patrick Wirth sharing the innovation journey with the audience in London hosted by KBW and we would love to see more insurers do the same. 

Further Reading

How incumbent carriers can survive, thrive or will be disrupted.

Insurers, competitors, transformation and digital maturity  

Everyone wants to be a beautiful butterfly