How risk managers can tackle the evolving automotive risks in their organisations

How auto risk is evolving

According to Capgemini’s World Property and Casualty Insurance Report 2023, more than 40% of the $3.8tn Auto industry will be autonomous, connected, and electric by 2030 up from 10% in 2020.

This will result in the mobility premiums for ACES (Autonomous, Connected, Electric, and Shared) vehicles growing eightfold from $0.07tn to $0.57tn between 2021 and 2030. 

 

As ACES becomes more mainstream, the frequency of vehicular accidents will decrease but there will be an increase in severity due to increased sophistication in the kind of vehicles used.

This will lead to a shift in the overall nature of the risk to be covered. With vehicles becoming increasingly connected, the potential for cyber risks emerges.

With the increasing prevalence of advanced driver-assistance systems (ADAS) in vehicles, algorithm liabilities are coming to the fore due to potential lapses in these technologies.

This is vastly different from traditional mobility risks which were limited to physical damages and personal injuries. Some of these risks are now starting to be owned by OEMs, through comprehensive coverage programs for fleet services.

“While driver-assist programs will help reduce and mitigate the traditional nature of mobility risk, risk managers need to be wary of the new threats created by the evolving mobility paradigm.”

For example, Mercedes Benz, in support of its SAE level 3 automated driving function, announced liability acceptance for collisions or crashes that are caused by technological malfunctions.

While this was only limited to certain parts of the United States, we see this trend picking up slowly where auto manufacturers are cognisant of the evolving nature of risks and their mitigation or remediation.

While driver-assist programs will help reduce and mitigate the traditional nature of mobility risk, risk managers need to be wary of the new threats created by the evolving mobility paradigm.

Therefore, the risk modelling would change from a focus on accurate single-risk pricing towards pricing multiple risks, while assessing a holistic risk profile above and beyond an asset such as a car.

What does it mean for risk managers? 

Risk managers need to adopt a continuous underwriting methodology utilising real-time data as opposed to a linear underwriting method.

This real-time component comprises of location data (weather, traffic, vehicle condition), behavioural data (driver persona, time of travel, distance travelled) or customer driving data (braking, acceleration, turning).

They need to work with multiple ecosystem partners such as OEM’s, banks, insurtechs and reinsurers to help with distribution, integration, and securing this real-time data.

In addition, they need to be supported by proactive risk analysis, to enable real-time risk prevention and driving assistance which should be supported by AI/ML.

“Risk managers need to learn to utilise these customised risk experiences to improve the overall stakeholder (customer and employee) experience.”

This will help them identify new risks and share them with key third-party players, such as regulators to bridge new mobility protection gaps, which in turn, would help build more resilient and smarter cities.

To successfully implement this model, risk managers need to enhance their data integration capabilities to manage evolving mobility risk profiles. This should be done with a focus on underwriting, and processing claims via predictive technologies and cutting-edge digital twins. 

Our data shows 73% of customers expect personalised pricing based on their mobility profile, yet only 31% of insurance executives assessed themselves as having advanced underwriting capabilities to cater to these customer needs.

Hence, risk managers need to learn to utilise these customised risk experiences to improve the overall stakeholder (customer and employee) experience.

What are the next steps for risk managers and the insurance industry?

Risk managers need to focus on four broad pillars:

• Value proposition:  They need to have a clear business strategy to manage the new risks while adapting this strategy to new business models such as the embedded insurance and modular subscription insurance models. 
• Ecosystem:  Insurers at present are not ready to leverage the ecosystem, with only 21% of insurance executives surveyed claiming to have advanced partnership capabilities. They need to work with multiple ecosystem players to co-design mobility solutions to help mitigate these risks.
  To do this, insurers will need to bring in their risk expertise to accurately model the risk while leveraging players, such as OEM’s, mobility providers, insurechs, BigTechs etc., for their distribution, data, technology, and integration capabilities. 
• Risk management capabilities: Risk managers need to leverage real-time data and enable ML to create explicable insights. Regarding claims, insurers need to modernise their FNOL, to rationalise costs in real-time. 
• Technology:  The starting point for insurers would be a well-defined technology roadmap that enables them to exchange data with other ecosystem players and draw the right risk insights. As per our survey, 67% of insurers believe that a technology roadmap is essential but only 33% of them have a well-defined roadmap in place.

Risk managers also need to utilise their risk to provide the right advice and recommendation for everyone involved to make mobility safer.