robots, smart homes and ride shares - exl service · [ robots, smart homes and ride shares ] •...

An EXL whitepaper

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Innovations opportunities in the age of disruption for P&C insurers

Robots, SmartHomes and

Ride Shares

1 © 2016 ExlService Holdings, Inc.

[ Robots, Smart Homes and Ride Shares ]

• The emerging “Internet of Things” uses

sensors and wireless networks to create

a web of connected devices in homes,

highways, offices and factories.

• The connected homes of the future will

use sensors to control climate, monitor

the health of appliances and could even

tell people when they’re consuming more

than their target calorie intake. However,

the threat hackers pose to smart homes

will open new areas of risk evaluation.

• Aerial drones could be deployed in new

ways such as assessing damages to

hundreds of acres of land faster and

more safely than inspections are currently

completed.

• Today, ride-sharing services require

underwriting flexibility as drivers and

passengers reconfigure their travel habits.

• In the future, software will control driving

functions to make cars safer, which will

reduce premium revenues.

This all sounds like science fiction now,

but consider the youngest insurance

customers. Fifteen years from today,

they will be the buyers. Having grown up

accustomed to their smartphones helping

them do pretty

much everything, they will expect to use

robots and technology to “simplify” day-

to-day activities. How should property and

casualty insurers adapt to these changes?

This paper aims to provide a roadmap.

The age of disruption has

arrived for property and

casualty insurers.

Consider the impact of

technological advances

and economic evolutions

that touch the P&C

industry:



Technology defines the future of automotive insurance Questions are cropping up for property

and casualty insurers: What will driverless

cars do to our business? How deep should

we dive into telematics and “pay-per-

use” insurance? Shouldn’t we be thinking

about ancillary products enabled by new

technologies?

Here’s a look at the questions on insurers’

minds and some potential answers.

What should we do about driverless cars?Headlines out of Detroit shout ominous

warnings that autonomous vehicles

will decimate the auto industry within

a generation, but it’s not just the auto

companies that need to be concerned.

While human error is implicated in nine-

tenths1 of all car crashes, Google’s

autonomous cars have logged more

than a million miles2 with only a few

minor accidents. Driverless cars have the

potential to dramatically reduce human

error – and a large chunk of the auto-

premium revenue those errors generate.

Early reports on autonomous cars also

project a liability quagmire, as the lack of a

driver obscures the cause of an accident.

It’s likely that blame for these increasingly

rare incidents will accrue to auto

manufacturers and their ecosystem. In its

‘Self Driving Vehicle Revolution’, McKinsey

predicts that during the consumer adoption

of autonomous cars, insurers will shift from

covering individuals to covering liabilities

arising out of technical failures, similar to

insurance for cruise lines and shipping

companies.3

U.S. law has a robust product-liability

regimen with a long track record of

adapting to new technologies. There’s

no reason to suspect automated cars

will pose a significant product-liability

challenge, according to an in-depth study

by the respected Brookings Institution 4 5.

With more than 2 million people involved

in car accidents6 every year, the annual

cost of roadway crashes reached $212

billion in 20127 . If McKinsey’s prediction of

autonomous cars reducing the accident

rate by 90%8 holds true, legislators are

likely to be convinced that driverless cars

are a safer option with billions of dollars of

positive impact to the economy.



Autonomous Vehicle Roadmap: 2015-20309

2015

• Google launches first short-range fully autonomous vehicle service in California-small scale pilot, limited to Google employees.

• Daimler and Honda announce major strategic initiatives and major investments and rapidly bring vechicles capable of full autonomy to the market.

• Car2Go announces a roadmap for autonomy in their car fleet.

• Automotive industry recognizes the implications of fully autonomous vehicles.

2016

• Google announces that their short range, limited-speed fully autonomous vehicle fleet will be built by Ford, Magna or others.

• China launches a major program to develop and deploy and deploy shared autonomous vehicles for local mobility.

• Google expands their short range autonomous vehicle service pilot to another US city that sees little rain and no snow and starts their first overseas fleet.

• Transformative potential benefits of autonomous vehicles are recognized. There is a bitter debate about the destruction of jobs.

2017

• Autonomous long haul highway trucks start testing in the US, Europe or Japan.

• Rental car companies launch their own autonomous mobility initiative.

• Google vehicles are now capable of driving in snow on pre-mapped routes.

• Automotive suppliers announce their own autonomous vehicles or special-purpose autonomous machines.

• Major road infrastructure projects are downsized because autonomous and connected vehicle technology have reduced the expectations on future transportation demands.

• Google moves their autonomous vehicle operations into a subsidiary which then merges with Uber and starts to roll out local autonomous vehicle mobility services in many more US cities.



Autonomous Vehicle Roadmap: 2015-2030 (contd.)9

2018

• Car2Go starts to add autonomous vehicles to their fleet.

• The Google subsidiary/ Uber merger rolls out autonomous vehicles internationally.

• Experience with autonomous vehicles shows that they are indeed much safer than the average human driver. People feel safe and comfortable in fully autonomous vehicles and there is no longer any question of user acceptance.

2019

• Autonomous vehicles now operate in over 50 cities worldwide.

• Rapid growth for autonomous trucks on specific routes. In many countries, truck drivers protest, but this can only delay their adoption slightly.

• The first high-end consumer cars capable of fully autonomous driving on a large part of the national road network become available.

2020

• The first countries introduce laws that prohibit bullying of autonomous vehicles (e.g. jumping in front of it to make it stop).

• Bleak outlook for automobile companies. Consumers use shared autonomous vehicle services. The auto industry has its “Kodak moment”.

and beyond...

• The cost for autonomous vehicle hardware has come down to USD 1500.

• Mass transit companies increasingly rely on autonomous vehicles for transport.

• Insurance rates favor operating cars in fully autonomous mode and prompt many people to stop driving on their own.

• Most companies require that business trips with rental cars must occur in fully autonomous mode (for safety and productivity reasons).

• Car ownership has declined dramatically, Only 20% of the US population still own a car (200 cars for 1000 people, today: 439 cars for 1000 people). 90% of all trips now happen in fully autonomous mode. Traffic accidents and fatalities have declined dramatically.



Progressive, a leading proponent of

telematics, analyzed billions of driver miles

and concluded that “actual driving behavior

is the leading variable in predicting a

driver’s risk, carrying more than twice the

predictive power of any other factor,”10

such as age, gender, and car type.

That means every automotive insurer can

tap the potential of telematics, but they

must be mindful of a couple key issues.

First, the idea of tracking a driver’s every

move unnerves some people, so insurers

must be prepared to assuage privacy

concerns.

Second, companies typically offer

discounts to encourage premium holders

to sign up for their telematics programs.

If telematics become widely embraced,

insurance companies may suffer a short-

term hit to cash flow while waiting for the

benefits of telematics to accrue.

Executives have already started to push

their actuarial and product development

teams to align products to the needs of this

changing market and consumer behavior.

Some insurers have already launched

usage-based insurance (UBI), albeit in a

restricted fashion. What remains to be

seen is how consumers react to products

like UBI and how insurers can protect

themselves against fraud.

The providers of services to insurers

that enable the entire ecosystem of the

insurance world will have to change their

Should we dive deeper into telematics and ‘Usage-Based Insurance’?Telematics uses technology to track

everything a car does: where it goes, how

fast it gets there and how many miles it

travels. This allows insurers to bill people

for how they drive, rather than where they

appear on an actuarial table.

Early telematics technology required

the user to install a sensor in their car,

a major roadblock for those who aren’t

mechanically inclined. Today, however,

smartphone technology can do everything

the old sensors could do. This includes

simple GPS tracking and using proximity

sensors, as well as complex health

monitoring systems like blood pressure

and electrocardiogram (ECG) monitoring.



offerings and alignment to match the

insurer’s needs. Some of the first movers

are already taking the initial steps to make

that happen. For example, CGI and Baseline

Telematics recently announced joining of

forces to integrate Baseline’s UBI platform

with CGI’s rating engine.

How can technology enable ancillary revenue streams?A study conducted by Ernst & Young

suggests that cost and policy benefits are

the key drivers for customers to switch

their insurance carrier.

Figure 1: Top Reasons for Closing or Replacing an Insurance Policy

Source: Ernst & Young11

0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 70 800 10 20 30 40 50 60

Customer loyalty benefits

Did not like the way claim was handled

Brand reputation

Experienced personal/family milestones

Research I conducted

Policy did not align to my life circumstances

Level of service received

Frequency/relevance of communication

Recommended by broker, friends

Policy benefits/coverage

Cost/terms

Global Total

Life* Auto Home

*includes life insurance and annuitiesNorth America Latin America



sensors to optimize engine operations and

bolster fuel economy. These same sensors

present potential for insurers to offer value-

added services. Most insurers already offer

roadside assistance. So-called “smart” cars

could allow them to add direct services like

a car-maintenance application that lines up

appointments for oil changes and reminds

drivers to check their tires. Leveraging what

they have learned from the credit card

industry, insurers could use telematics data

and analytics in so that a suspicious change

in driving pattern or behavior would notify a

real-time theft-monitoring center that can

alert the owner.

Indirect services provided by the insurer,

can also create customer loyalty and

help enable ancillary revenue streams.

For example, providing valet services at

airports for frequent travelers, or helping

the client by facilitating or buying ‘end of

lease’ vehicles in partnership with a dealer

network could keep customers engaged.

Insurers do not have to keep these

ancillary products and services confined to

vehicles. Impressive examples from other

industries include Verizon’s offer of GPS

routing service for both pay-per-use and

flat monthly fees and Costco’s discounts

to members if they buy a car through their

dealer network.

What does GPS routing have to do with a

cellular phone company’s core business?

What does car buying have to do with a

consumer goods store? Insurers have the

Insurers will have to create out-of-the-

box products and policy benefits to keep

customers engaged. Benefits offered may

or may not be directly related to insurance

services. Examples include credit card

companies offering travel insurance,

or an insurance company like Allstate,

collaborating with United Airlines to offer air

miles for every dollar a customer pays on

their premiums.

Telematics offer an example of the

opportunities that will enable insurers to

develop ancillary products and services to

keep the customers engaged and possibly

add new revenue streams to compensate

for the loss of premiums due to enhanced

adoption of autonomous vehicles and UBI.

Cars already contain an intricate network of



connected home. Some early adopters

of these gadgets, were in it for the trend-

setting appeal, while others sought to save

money on heating and electricity bills.

ability to create partnerships and product

lines that fall outside the core of their

industry, yet help maintain and gain market

share by creating a solution that elevates

brand recall among consumers when

making a buying decision.

Are smart homes worth incentivizing?ConnectHome and Smart Home have been

the buzzwords for a few years. Most people

thought of these types of residences would

take years, if not decades, to become real.

Although no single solution is available to

turn a regular home into a “smart home”,

consumers can combine thousands of

products such as connected light switches,

RFID sensors and proximity sensors to

piece together their own version of a Source: Forbes.com12

Projected new adoption of connected Technology by consumers

In the next year

Five years from now

More than five years from now

Total expected adoption

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The threat of someone breaking into the

home without ever stepping foot inside

is as real as the growth of smart homes.

Hackers will still find ways to know what

they can control while being thousands

of miles away. This threat will give rise to

a nascent, growing home data security

industry.

From a risk underwriting point of view,

insurers will have to start rating the

exposure that smart homes have to such

remote attacks. At the same time, this

provides an opportunity for specialty

insurers to offer protection in partnership

with data security vendors.

Flying Robots: How will drones affect claims and underwriting? Drones were hobbyist novelties until

people started attaching video cameras

to them. Suddenly, everybody had access

to a bird’s-eye view of their environment.

Camera-equipped drones can hover at

a low altitude without the cost of hiring

pilots to fly helicopters or small planes. This

has important implications for insurers of

homes and personal property.

The FAA has determined that small drones

are “currently the most dynamic growth

sector within the aviation industry.” By

2020, it is estimated that about 30,000

small unmanned aircrafts will be used

Smart thermostats and security systems

seem to be the first choice for home

automation. Devices like these are a win-

win for the consumer and the insurer.

A smart thermostat can help prevent

plumbing from freezing, while a leak

detector can shut off the water supply if

it detects abnormal moisture. Insurance

companies could incentivize adoption

of this kind of technology with discounts

for customers that install these gadgets.

Mainstream adoption is predicted to take

place within the next two to ten years. It’s

only a matter of time before smart homes

are more common, especially as the

constant downtrend in technology prices

will make them more affordable.



to rebuild or repair homes in customers’

hands in days rather than weeks or

months. Customers emerge grateful for

speedy insurers.

• Farm and property surveys: An early

adoption of survey drones could be

for farm and crop insurance. The

surveyor would not have to deal with

the congestion of structures, and could

remain compliant to the various FAA

guidelines governing the conditional

approval accorded to insurers.

• Home inspections: Imagery gathered

through drones combined with powerful

analytical algorithms could also be used

to calculate the floor area of a property

based on its rooflines, the angle of the

picture, and the altitude from which the

picture was taken. Some niche providers

have started developing and testing such

algorithms for simple structures with clear

rooflines.

Think about the convenience to the

customer, who wouldn’t have to be home

for the inspection. The insurer would

save time and improve utilization of their

surveyors, because they could work

independent of the homeowner’s schedule.

Insurers could see potential savings from

for all types of business purposes. The

FAA has allocated $63.4 billion for the

modernization of the country’s air traffic

control systems, as well as an expansion of

airspace to accommodate the commercial

use of drones.13

Much has been said about how the use

of drones will revolutionize insurance

operations. After all, a drone can see

entire neighborhoods or focus on specific

properties.

Property and casualty insurers should

consider drones for several areas including:

• Natural disasters: Following an

emergency, claims adjusters with drones

could identify insured homes, assess

damage, process claims and have money



Administration (FAA). In a significantly

positive step towards developing

a structure, operational ethics, and

boundaries, several insurance companies

(including commercial roofing groups,

shingle manufacturers, and the Insurance

Institute for Business and Home Safety

(IBHS)) have joined the Property Drone

Consortium (PDC) to work together to

promote research, development, and the

establishment of regulations for the use of

drones. Armed with a limited approval from

the FAA, some insurers have already tested

drones for battery life, picture resolution,

collision avoidance, emergency landing

and more.

There are several challenges that will

need to be addressed before we see

drones becomes an integral part of the

claims investigation or underwriting survey

process:

• In June 2014, the Washington Post

reported, “A NASA database of

confidential complaints filed by pilots

and air-traffic controllers has recorded 50

other reports of close calls or improper

flight operations involving drones over

the past decade. Since November 2009,

law enforcement agencies, universities

and other registered drone users have

reported 23 accidents and 236 unsafe

incidents, according to FAA records.”14

The PDC will have to ensure a tight

self-regulation regime to ensure public

security and safety.

reduced employee liability insurance

because the contractor / employee would

be no longer climbing roof tops and putting

themselves in harm’s way.

In order to achieve the most optimal

outcomes, insurers will need technology

combined with sophisticated analytical

models, as well as a new back-office

support structure. The question then

becomes whether this is an area that

insurers should invest in for themselves,

or if the investment should be left to other

service providers gaining expertise in these

areas?

For now, large insurers in collaboration

with certain niche service providers are

taking the lead in research, trails, and

lobbying efforts with the Federal Aviation



companies or individuals that need a

temporary drone for activities including

surveys.

• The FAA regulates drones as if they are

piloted aircraft. The FAA is beginning to

loosen its restrictions on commercial use

of drones, but the rules remain numerous

and complex. Insurers must be prepared

to conform to FAA drone requirements.

What do insurers need to know about car- and home-sharing services? Until recently, you had to be a cab driver or

chauffeur to drive people around for pay.

With the rise of Uber, Lyft and other car-

sharing services, anybody with a car can

pick up extra money by taking other people

along for the ride.

Something similar is happening in the

hospitality business, where Airbnb helps

people rent out their home to travelers.

Most home and auto insurance policies are

not written with this kind of commerce in

mind.

In January of 2015, the CEO of a startup in

Austin, Texas, decided to give up his car for

31 days and rely solely on two car-sharing

services. In the course of his travels, he

noted one striking fact: Nine of out ten

drivers he talked to had not spoken with

their insurance company about their ride-

sharing jobs.15

It’s not that the people doing the sharing

are creating huge liability gaps. Uber, Lyft

• Insurance liability and coverage issues

must be addressed, including personal

injury, invasion of privacy, aerial

surveillance and data collection.

• Large insurers may need to develop

the means to cooperate with their

competitors so that disaster scenes

aren’t buzzing with dozens of drones. A

centralized governance body like PDC

could be an easy answer to this concern,

but the operational nuances will need to

be addressed.

• Small and medium sized insurers may not

have the resources to deploy drones or

to contribute a lot of research dollars to

the PDC. Fly4Me could be an answer to

this industry segment. The FAA recently

approved an “Uber for Drones” program

that connects local drone pilots with



develop hybrid policies that account for

the times when cars and homes are being

shared.

OK, where do I start? Truly capitalizing on these market forces

will require strategic attention and

investments across several fronts. This

underscores the need for prioritization, pilot

programs, follow through, and governance.

Broadly speaking, companies will need all

aspects of their organization to be flexible

and responsive. Front, mid, and back

offices will need to be tightly integrated as

initiatives are designed, tested, assessed,

and then scaled or abandoned.

Regardless of the specific initiatives

undertaken, investments and

transformation should be considered to

varying degrees across the following areas:

Analytics

Whether understanding or predicting

customer behavior, assessing impacts

on risk, or identifying up- and down-

stream impacts on business operations,

analytics will be a key driver of truly utilizing

company data to transform corporate

decision making.

and Airbnb all provide up to $1 million in

liability coverage. But sharing services

change the risk profiles of the drivers and

homeowners who use them. Offering a

ride in exchange for money constitutes

a commercial activity, and in the eyes of

the insurer, that means the driver needs

commercial insurance. Uber covers its

drivers as long as they are driving an Uber

passenger. What these drivers don’t realize

is that it leaves them dependent on their

personal auto policy when they aren’t

driving for Uber. Insurance companies are

becoming increasingly aware that people

are relying on personal policies to cover

commercial work. While some companies

like GEICO and USAA launched pilot

products aimed at ‘ride share’ drivers, the

industry must adapt to these realities and



back offices. This will allow for testing

new products and programs with an eye

on either scaling or failing quickly. This

integration might require assessing and

transforming operating models, increasing

standardization, and adding capacity in

some areas.

Operational and opportunity cost controls

Time and budgets are zero-sum games

for many organizations. Initiatives that

capitalize on the many market disruptors

the industry faces – including role and

task analysis to carve out, remove, or

automate non-core tasks – will become

vital to the success of the initiative. These

efforts will minimize the time their best

and brightest spend outside new strategic

efforts. Further, insurers will need to take a

surgeon’s scalpel to operating costs to free

up investment funds for testing and scaling

new initiatives, and to protect against

trends that might threaten revenue in the

near and midterm.

These are exciting times for an industry

built on managed risk and safe returns.

Driven by technological advancements,

these disruptors present challenges or

opportunities based on the degree insurers

prioritize them, and find a way to profit in an

environment of disruption.

Automation and technology

Insurers will need to find ways to tackle

disruptors, improve the end customer

experience, and drive productivity, while at

the same time working within cumbersome

legacy IT. In this type of environment,

insurers will increasingly need to assess

automation technology and SaaS/cloud

deployment of discrete point solutions that

can provide lifts in key areas quickly and

cost effectively.

Front and back office integration

In an environment with multiple

simultaneous disruptive forces, it would

be highly unlikely that every new initiative

will be an out-of-the-box success.

Insurers will need to design for operational

flexibility, with tightly aligned front and



6. http://www.futuristspeaker.com/2012/01/driverless-cars-a-driv-ing-force-coming-to-a-future-near-you/

7. http://www.mckinsey.com/insights/au-tomotive_and_assembly/ten_ways_au-tonomous_driving_could_redefine_the_automotive_world

8. http://www.mckinsey.com/insights/automotive_and_assembly/ten_ways_autonomous_driving_could_redefine_the_automotive_world

9. http://www.driverless-future.com/?p=678

10. https://www.progressive.com/news-room/article/2012/july/snapshot/

11. http://www.ey.com/Publication/vwLUAssets/ey-2014-global-custom-er-insurance-survey-america/$FILE/ey-global-customer-insurance-sur-vey-america.pdf

12. http://www.forbes.com/sites/gil-press/2014/08/22/internet-of-things-by-the-numbers-market-estimates-and-forecasts/

13. http://www.riskandinsurance.com/rise-drones/

14. http://www.washingtonpost.com/sf/investigative/2014/06/23/close-en-counters-with-small-drones-on-rise/

15. https://www.thezebra.com/insur-ance-news/848/uber-vs-lyft/

References 1. http://www.alertdriving.com/home/

fleet-alert-magazine/international/hu-man-error-accounts-90-road-accidents

2. http://recode.net/2015/05/11/google-no-our-self-driving-cars-arent-getting-dinged-up-that-much/

3. http://www.mckinsey.com/insights/au-tomotive_and_assembly/ten_ways_au-tonomous_driving_could_redefine_the_automotive_world

4. http://www.brookings.edu/research/papers/2014/04/products-liability-driv-erless-cars-villasenor

5. http://www.brookings.edu/blogs/techtank/posts/2014/04/driverless-cars-pay-for-an-accident

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robots, smart homes and ride shares - exl service · [ robots, smart homes and ride shares ] •...

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