A few years ago, the media announced the imminent disappearance of car insurance. While the end has not yet come, the industry is facing a fundamental reinvention. McKinsey recently spoke with Rebecca Beckert, associate partner in the Frankfurt office, about auto insurance and developments in the industry.
McKinsey: What has changed in car insurance in recent years?
Rebecca Becker: The number of electric vehicles has increased rapidly. Smart cars can easily connect to our smartphones to enable data collection and tracking. Electric scooters and car-sharing vehicles have taken over the streets of major cities. In fact, our research suggests that by 2030, 50% of new car sales will be hybrid or electric vehicles, around 60% of the cars on our streets will be smart cars, and 20% of global mobility will be via new modes. of mobility. such as shared mobility or micromobility.
Of course, the way we travel and get around won’t completely change overnight. And private vehicles will remain a key mode of transportation over the next decade. But these are significant changes facing the industry.
The integration of insurance into the means of mobility will redefine the rules for distributing insurance.
McKinsey: These are indeed fundamental changes. How does this affect insurance companies?
Rebecca Becker: The immediate implications for insurers are many: fewer but more costly claims; new customer relationships, including fleet customers as opposed to just individual customers; new risks associated with electric vehicles and autonomous vehicles; and a steadily shrinking vehicle population due to increased shared mobility and micromobility. We also see new players on the horizon in auto insurance who are ready to attack incumbents and rethink approaches to selling insurance.
Take Tesla as an example. Not only did Tesla, a car manufacturer, begin to create its own insurance company, but it is also redefining car insurance. Tesla is the very first insurer to offer insurance based on driving behavior. This means customers will no longer have to fill out lengthy insurance forms filled with personal data.
Automotive subscription providers such as Care by Volvo, Cluno and Hertz+ are also changing the landscape. If someone takes out a car subscription – a short-term lease or longer-term rent for one or more months – what is their insurance experience? They probably don’t, because the insurance is fully integrated into the subscription. So why not incorporate car insurance into any type of vehicle or mobility purchase, whether it’s a personal car or a train journey? The integration of insurance into the means of mobility will redefine the rules for distributing insurance. This could make traditional insurance delivery channels redundant, with penetration rates of integrated insurance offerings being a multiple of traditional models.
Today’s insurers must be part of industry reinvention if they are to remain relevant.
These are just a few examples of how the auto insurance industry is reinventing itself. We anticipate many more changes in the years to come.
McKinsey: How can historical actors participate in reinvention?
Rebecca Becker: The central question is: who will lead this reinvention? Will it be the traditional insurance companies of today or the Clunos, Teslas and Ubers of tomorrow?
To participate, incumbents will need to conduct an in-depth analysis of future mobility trends – bearing in mind that cars will remain critically important – as a starting point. Building partnerships with a variety of players in the mobility industry could also help players develop compelling value propositions for tomorrow’s customers, as well as participate in the development of new mobility ecosystem offerings. Whichever path they take, insurers today must be part of the reinvention of the industry if they are to remain relevant.
Rebecca Beckert is an associate partner of the Frankfurt office of McKinsey.