The way Financial Service providers are used to dealing with cars and mobility is very product orientated: car loans, car insurance, leasing. Innovation and new technologies help them to create better risk scoring engines and telematics provide the possibility of usage-based pricing for car insurance. But does this provide the answers and solutions to the customer questions and needs that are changing?
It’s not about owning
Access to a specific product is commonly becoming preferable to owning that product, e.g. staying in someone else’s apartment for a city break using Airbnb, getting there from the airport in an Uber while listening to Spotify. Platforms connect demand with spare capacity and in doing so create what we call the ‘sharing economy’.
Three things are driving this sharing economy
First, millennials apparently prefer consuming services over owning something. It is convenient, easy, accessible, fast and flexible. Second, new technologies such as smartphones make it easy to find and use spare capacity and sensors (IoT) provide 24/7 feedback on the product’s usage and status. This allows for a seamless user experience, better understanding of customers’ needs, pro-active action and the ability to customise offers. And third, the circular economy where goods are supposed to be taken back and recycled becomes increasingly important.
It’s not about the car
Nowadays there are multiple ways to travel from A to B. And how you travel depends very much on the occasion, budget, distance etc. For instance, you may take a small car for driving your 6-year old to their school, you may hire a limo to drop off your 18-year old daughter to her Prom and borrow your friend’s van to help her move into her dorm. Car sharing, ride sharing, lift sharing are all solutions to your needs. Additionally, traveling by aeroplanes or train has become more affordable. As long as it gets you where you want to go.
Even car manufacturers like Ford and Toyota are looking beyond the car itself and turning their attention to building holistic mobility platforms to transform their companies into operating systems for the future of transportation. For example, by investing in autonomous car start-ups and running mobility projects to solve their customers daily mobility problems.
And while talking about the car: a Dutch study showed that brake assist, lane control, park assist and technologies that are supposed to make driving safer (to prevent damage), lead to more claims. People tend to trust these safety measures (if they know how to handle them and to turn them on) and forget that next to the damage, also the electronics need to be repaired after an accident. Anyway, it is the more luxurious segment that has the equipment to really benefit from the connected vehicle developments and the services it offers and the price tag of these cars is often high.
It’s about the person and his/her behaviour and how Financial Service providers can deal with that
How is my driving, when am I driving, where am I driving? Where do I need to go? What do I need the car for? As the user behaviour is changing, enabled by technological development (e.g. connected cars) Financial Services providers have the chance to change their offering and maybe even their business models around mobility. Real time analytics, automated response logic, predictive analytics, improved risk scoring should not only result in greater loss reduction, better performing loans, but also in personalised services and the possibility to enhance the total value proposition around mobility by addressing ownership and usage.
UK based insurer Veygo (part of Admiral) goes beyond ownership. They offer short term insurance for “drivers with no car”. They focus on student drivers and car sharing leaving the car owner’s main policy untarnished and any no claims bonus protected. This takes out the uncertainty for the person who lets out their car and offers an on-demand insurance if needed.
Metromile & By Miles
Insurtechs as Metromile (US) and By Miles (UK) offer usage-based insurance. For their pay-as-you-drive insurance they use a wireless device that securely measures mileage count and bills based on that. But even though usage-based insurance offers potential, it is not the reality as Matteo Carbone pointed out in his recent article on the topic. Most telematics policies still have a fixed up-front price and the data collected is used for minimising premium leakage, increased retention of good risks and to negotiate lower reinsurance costs.
Enhancement of the value proposition
But it can also be used to enhance the value proposition. The same logic and technology for example makes Metromile’s offer a better claims experience, helps you find your car in a crowded parking lot and it even makes the By Miles’ app Car Medic, offer you an on-board mechanic. It basically gives your less luxury car all the benefits of luxurious connected car, the ones that come with a higher price tag. Indian insurtech Kruzr works with a mobile app that automatically detects driving and begins to play the role of your driving assistant using pattern recognition, machine learning, natural language processing etc. It helps cut down distractions thereby reducing claims. The app for example then manages incoming calls and messages with the personalised bot interacting and alerting inbound callers that one is driving at the moment and hence can leave a message for deferred attention.
Influence on the driving behaviour
At the same time, this technology and logic give Financial Service providers the possibility to change driver behaviour. US Insurtech Root’s mobile phone app takes data from the accelerometer and other sensors on the smartphone and gauge an applicant’s driving skills, use the data to understand actual driving behaviour and then Root uses this to calculate a quotation.
Root’s app can also recognise unusual phone patterns such as when and how frequently someone is engaging with their smartphone while driving, by using the gyroscope and accelerometer cell. This gives them the opportunity to reward drivers who avoid mobile device use while driving with up to an additional 10% off on their insurance quote. Dutch insurance carrier Interpolis is doing the same with their Automodus app. This not only appeals to social responsibility but also decreases the number of accidents. Research showed that drivers that are in ‘Automodus’ have 25% less claims than expected.
Finnish financial service provider OP also goes beyond car finance and insurance business’ ‘mobility as a service’. As part of their proposition they offer electric cars as a service (including insurance, maintenance, repairs, tire changes, car wash). They help build electric car charging stations in Finland, they support car sharing with tools (app that books the car, ensures efficient use of cars, sharing the costs) and offer the franchise for Drive Now in Finland. Of course, supported by an app for drivers that also manages automatically and securely, all related payments. This impacts not only the very digital drive but also the key economic indicators, Financial Service providers’ ROE and shareholder value.
Solutions for real people in the real world. The full potential is still to be realised. What’s next?