Car manufacturers (i.e., OEMs – Original Equipment Manufacturers) and insurers have been cooperating to bring OEM-branded insurance propositions to customers for many years; nevertheless, they have not managed to fully untap the value of their collaboration yet. They need to alter the current paradigm by searching for a better common ground. Reinsurers can help by allowing for scalability across multiple markets, supporting innovation via risk transfer, and bringing unique tools and insights through advanced risk assessment.
Insurers and car manufacturers: how to unlock the potential of true collaboration
The current model of collaboration between car manufacturers and insurers: where is the value creation?
Car manufacturers and insurers have been cooperating to bring OEM-branded insurance propositions to customers for many years. The first examples of such cooperation date back to the 60s in Europe, but since then there has been little evolution in the mechanics of these arrangements. OEMs offer insurers a unique distribution opportunity to engage customers at the exact moment that they are typically in need of insurance, i.e., when they are buying a new vehicle.
Car buyers are given the option to 'drive away' from the dealership forecourt with a simple and convenient insurance product that can then be extended to a largely standard insurance policy that offers certain tailored benefits for the customer, such as guaranteed parts and repairs from OEM garages. OEM dealerships benefit from this as well. Firstly, they ensure that the customer's journey is smooth and help to finalise the car purchase. Secondly, they secure a potential future revenue stream by ensuring that the vehicle will come back to them for any necessary repairs. Finally, insurers gain an additional distribution channel for their product.
OEMs and insurers: the untapped value
Beyond the convenience and peace of mind offered by the knowledge that their car will have guaranteed OEM parts for any necessary repairs, there are few additional benefits that the customer would not be able to get in the open market for insurance. Apart from an alternative distribution channel, the insurer gets very little data compared to what it could get independently if it were to distribute its products via other channels such as price comparison websites. In a market such as the UK where over 80% of motor insurance customers shop for insurance and see price as the most important factor in their purchase decision, insurers need to do more to differentiate their product.
All of this results in a relationship between OEMs and insurers that is transactional in nature and short-term in its outlook. It fails to create or foster long-term value for either party. Focusing solely on distribution opportunity and relying on the limited differentiation offered by guaranteeing OEM parts and repairs is not enough. Customers today want a service that both provides value for money and convenience and incorporates wider services.
End customers need a greater value proposition to justify them not simply settling for the cheapest product available in the open market. To achieve this, both OEMs and insurers need to be more open to doing things differently. Vehicle technology today is worlds away from where it was just a few years ago, meaning that OEMs are sitting on a valuable source of data that an insurer could use to differentiate and improve its product proposition for customers. But this isn't always made freely available.
OEMs also have a multinational sales footprint. They sell largely homogeneous vehicles across multiple markets but are unable to find homogeneous insurance solutions for the markets in which they sell them. Insurance markets and regulations vary greatly from one country to another, meaning that local approaches are needed. This results in significant costs for insurers wanting to develop something truly innovative for OEMs.
However, in more recent times, both car manufacturers and insurance providers have been attempting to alter this paradigm by searching for a better common ground. There seems to be a consensus that an improved customer journey can only stem from a deeper integration and better usage of the available resources, namely digital platforms, connected car data and vehicles' technical information.
As a result, some car manufacturers have decided to integrate vertically and maintain tighter controls over insurance operations by acquiring and then leveraging their own insurance licences. Of course, in the long term, such an approach has the potential to achieve the desired seamless customer journey within the automotive ecosystem, but it is undoubtedly the least efficient way to do so. OEMs will need to build capabilities already available in the insurance industry, hire insurance experts and invest capital which would most likely be put to better use in different parts of their companies. The alternative is to partner with the insurance industry on a truly collaborative basis.
How car manufacturers and insurers can build a win-win value proposition: the role of reinsurers
Each party has to bring something unique to the table. As OEMs begin to introduce apps that customers can use to interact with their vehicle and make things more convenient for them, insurance needs to be embedded as a seamless part of the service in the same way that maintenance and servicing already is. Insurers need to embrace the data insights that are being made available through the deployment of new technologies on vehicles.
A successful example of key stakeholders bringing their individual core capabilities to the fore is provided by the collaboration between Mercedes Benz (OEM), HDI (insurer), Swiss Re (reinsurer) and Movingdots (Swiss Re's tech arm in the auto and mobility space). In this partnership, Mercedes Benz makes connected vehicle data available to Swiss Re and Movingdots to enrich them with additional contextual information (e.g., time of day, road type). Thanks to the data and its superior analytical capabilities, Swiss Re can produce insurance scoring insights and HDI can roll out an insurance product that meets the needs of customers in a fair and convenient way. Flexible by design, the solution will initially be launched in the German market, but could immediately be rolled out in other geographies, even with different input datasets.
Reinsurers have only recently appeared on the branded motor insurance scene. To solve OEM's desire for a scalable solution across multiple markets, reinsurers can play a unique role in partnering with the insurance industry across many markets, supporting innovation via risk transfer and bridging the existing gap between automotive and insurance industries, allowing them to cooperate under a new paradigm. Their understanding of risk assessment also allows them to bring unique tools and insights to unlock the potential of what both insurers and OEMs could achieve in future.
Reinsurers in general, and Swiss Re in particular, can facilitate innovation, and create long term and sustainable success for all parties. Our historical relationship with the insurance industry, as well as the partnerships announced in recent years with car manufacturers such as BMW, Mercedes Benz and Toyota, are strong evidence that there is solid interest among stakeholders within the automotive insurance value chain.
Gareth Rees: Gareth is Senior Automotive & Mobility Solutions Manager at Swiss Re. Having spent a number of years in the primary insurance industry, working across the fields of telematics, claims and innovation, Gareth now works with clients to identify their needs and assess how Swiss Re can bring value through its suite of solutions. Contact: [email protected]
Gian Matteo Corda: Gian Matteo Corda is Senior Partnership Manager at Swiss Re. He is an aerospace engineer and INSEAD MBA. He combines a profound expertise on the design of automotive safety systems gained at Italdesign Giugiaro (special projects branch of the Volkswagen Group) with a deep knowledge of the auto insurance space stemming from its experience at Allianz and Swiss Re. Contact: [email protected]
About Swiss Re: The Swiss Re Group is one of the world’s leading providers of reinsurance, insurance and other forms of insurance-based risk transfer, working to make the world more resilient. The Automotive and Mobility Solutions (AMS) team at Swiss Re leverages its expertise in data analytics and its strong network of strategic partners to design and create innovative products addressing the key challenges of primary insurers, car manufacturers and mobility players.