🔎 Tesla is approved to start selling auto insurance on their cars in Texas, only the second state after California
💡Plus, more Insurer Partnerships, Tech Investments, and Divestitures to come in 2021
🚗 Tesla is approved to start selling auto insurance on their cars in Texas, only the second state after California. Tesla claims to be able to provide protection for 20-30% lower than standard insurance carriers and is announced to be joining their underwriting partner Redpoint County Mutual Insurance Co. in Texas as they relocate from their California HQ to Austin. (Read More)
Sankar Virdhagriswaran, Partner @IBM:
“The offering by Tesla is a competitive threat to insurers while at the same time providing opportunities for existing carriers to innovate.
Bodily injury and car damage through accidents are the largest sources of claims. However, given the range of coverage provided by insurers (e.g., windshield cracking), consumers may have more comprehensive coverage when a car gets into an accident or is damaged due to natural events. In many states, regulators work with insurance firms to ensure that such coverage is provided and the level of coverage expected is meeting a minimum threshold of standard. This threshold varies from state to state.
While Tesla may be providing a core set of coverages, this offering presents an opportunity to carriers who look for innovation. For Tesla cars insured by Tesla, carriers can provide additional/supplemental coverage that Tesla may be missing. Additionally, they can position their umbrella coverage policies to protect the consumer against such gaps. Legacy carriers have finely tuned data that goes considerably wider in terms of damages and longer duration, which they can use to provide more fine-tuned supplemental coverage to what Tesla offers.
Additionally, carriers that have historically offered pay-as-you-go auto insurance pricing leveraging vehicle telematics data can also compete with Tesla with innovative pricing models that fit the lifestyle of Tesla owners and households.”
📈 More Insurer Partnerships, Tech Investments, Divestitures to Come in 2021, Says Bain. Insurers in 2021 will be doubling down on streamlining, reinforcing their core businesses and updating technology, and mergers and acquisitions will help them get there as it did in 2020, according to a Bain & Co. report. (Read More)
Eric Pilkington, Partner @IBM:
“Today, insurance leaders have begun to look beyond COVID-19 and implement strategies that better enable companies to thrive in the next normal. As they do, many recognize the impact that mergers and acquisitions, partnerships, disposals, and investments can have in helping companies enhance their portfolios, enter more profitable market segments, acquire key talent, and accelerate the important shift to digital operating models. Moreover, companies that the recent crisis has directly impacted have created consolidation, expansion, and diversification opportunities. For all of these very reasons, we expect 2021 to be a busy and positive year for insurance M&A - a mix of offensive and defensive plays as companies look to protect existing markets, evaluate business mix and portfolio options, and establish defensible market leadership.
This strategy and approach have been prominently on display in the P&C insurance sector. Allstate, for example, struck a deal late last year to buy National Holding Corp. for $4 billion, the insurer's largest purchase on record, and AXA SA recently completed its $15 billion acquisition of XL Group Ltd. Last week, The Hartford rejected Chubb's $23 billion purchase offer. Many analysts, however, anticipate that the two insurers are just at the start of their courtship. Hartford has an attractive small business insurance franchise that would be additive to Chubb's platform. The merger would also help Chubb to further expand in other sectors, including auto and home.
Such trends, however, are not new. A look at the past five years shows us that many insurers have opted to streamline their business and redefine themselves with a narrower focus and a stronger core. On the other hand, buyers have begun taking advantage of these divestitures to strengthen their market position and step into near adjacencies. In this new normal, growth-minded companies have an incredible opportunity to acquire InsurTech assets and to partner with technology providers that enable them to better meet customers' digital engagement demands, expand their capabilities, and support employees' new work-from-home needs. Smart companies need to pursue both of these paths, actively strengthening their core business while building their ability to compete and win as the industry continues to evolve and move faster towards a digital future.”
💵 Insurtech startup launches affordable prepaid car insurance. Startup Vaai.co has established an affordable on-demand car insurance solution that works similarly to buying prepaid airtime, allowing consumers to purchase insurance they can afford and recharge it when required. (Read More)
David Kwon, Associate Partner @IBM:
“Vaai.co, above all, should be recognized for providing a valuable service to South African society by providing much-needed affordable auto insurance coverage to drivers in economically challenged nationhood. Vaai.co's ability to provide coverage-by-day is an example of innovation that established insurers talk about but never can make it happen due to legacy tech limitation, operating model inflexibility, and even cultural aversion. On the other hand, Vaai.co has significant challenges ahead. Economically challenged neighborhoods typically have more considerable risks (e.g., high crime rate). Also, coverage-by-day is susceptible to adverse risk selection, such as buying coverage when going off-roading but not driving to the local mall. Nevertheless, this innovation may be the future of auto insurance, and Vaai.co is ahead. Hopefully, they can make this model sustainable and scalable.”
🔐 Aon and Nayms collaborate to launch cryptocurrency pilot. Aon has announced what it calls a “first-of-its-kind” offering to secure capital through a collaboration with Nayms, an InsurTech platform that supports cryptocurrency investors in insuring crypto risk. (Read More)
Ben Jessel, Associate Partner @ IBM:
“Decentralized finance and cryptocurrency is an emerging frontier full of risks for those who participate in it; billions of dollars have been lost in this space due to hacks, including protocol, oracle, and smart contract exploits. Unlike traditional finance, where there is some degree of recourse, few remedies are available to those that lose their funds in the decentralized realm. That has been one of the reasons that traditional, regulated institutions have been unable to participate.
Insurance has started to emerge that match together underwriters with those seeking protection. However, until now, this has been a space that traditional institutions have not sought to participate in given market size, complexities of writing risk, and lack of regulatory clarity in this space.
The announcement that insurance broker giant Aon intends to enter the space with a pilot program with InsureTech platform Nayms is an indication that cryptocurrency and decentralized finance may be starting to reach mainstream adoption.”
Contributors:
Yoann Michaux — yoann.michaux@ibm.com
Stephanie Marino — stephanie.marino@ibm.com
Danielle DiGuglielmo — Danielle.diguglielmo@ibm.com
Mikey Mayers — Michael.mayers@ibm.com
Sankar Virdhagriswaran — svirdhagriswaran@us.ibm.com
Eric Pilkington — eric.pilkington@ibm.com
David Kwon — dkwon@us.ibm.com
Benjamin Jessel — benjamin.jessel@ibm.com
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