A few years ago, the media was heralding the imminent demise of motor insurance. While the end has yet to come, the industry is facing a fundamental reinvention. McKinsey recently spoke with Rebecca Beckert, an associate partner in the Frankfurt office, about motor insurance and how the industry is changing.
McKinsey: What has changed in motor insurance over the past several years?
Rebecca Beckert: The number of e-vehicles has been growing rapidly. Smart cars can easily connect with our smartphones to enable data collection and tracking. E-scooters and car-sharing vehicles have filled the streetscapes of larger cities. In fact, our research suggests that in 2030, 50 percent of new car sales will be hybrid or e-vehicles, around 60 percent of cars on our streets will be smart cars, and 20 percent of global mobility will take place via new mobility modes like shared or micromobility.
Of course, the way we are traveling and moving will not change completely overnight. And private vehicles will remain a key means of transport over the next decade. But these are significant changes facing the industry.
Embedding insurance into the means of mobility will redefine the rules of insurance distribution.
McKinsey: These are fundamental shifts indeed. How does this affect insurance companies?
Rebecca Beckert: The immediate implications for insurers are manifold: fewer but more expensive claims; new customer relationships, including fleet customers as opposed to just individual customers; new risks associated with e-vehicles and autonomous vehicles; and a gradually shrinking vehicle population due to increases in shared and micromobility. We also see new players on the motor insurance horizon who are ready to attack incumbents and rethink approaches to selling insurance.
Take Tesla as one example. Not only did Tesla, a car manufacturer, start building its own insurance company, it is also redefining motor insurance. Tesla is the very first insurer to offer insurance based on driving behavior. That means customers will no longer have to fill out lengthy insurance forms filled with personal data.
Car subscription providers such as Care by Volvo, Cluno, and Hertz+ are also changing the landscape. If someone books 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 have one, because the insurance is fully embedded in the subscription. So why not embed motor insurance in any kind of vehicle or mobility purchasing, be it a personal car or a trip via train? Embedding insurance into the means of mobility will redefine the rules of insurance distribution. It could make traditional insurance distribution channels redundant, with penetration rates of embedded insurance offerings being a multiple of traditional models.
Today’s insurers must be part of the industry’s reinvention if they are to remain relevant.
These are just a few examples of how the motor insurance industry is reinventing itself. We expect many more changes in the coming years.
McKinsey: How can incumbent players participate in the reinvention?
Rebecca Beckert: The core 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, incumbent players will need to conduct a thorough analysis of future mobility trends—without forgetting that cars will remain of utmost importance—as a starting point. Building partnerships with a variety of players in the mobility sector could also help players develop convincing value propositions for customers of the future, as could participating in the development of new mobility ecosystem offerings. Whichever route they take, today’s insurers must be part of the industry’s reinvention if they are to remain relevant.
Rebecca Beckert is an associate partner in McKinsey’s Frankfurt office.