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Big-data disruption gets real for car insurers
[LONDON] Auto insurance may be on the brink of an incursion from mobile-phone and technology companies.
Telefonica SA's O2 unit - one of the first mobile operators in Britain to offer car insurance - expanded its product line in February to include telematics boxes, which track people's driving habits and can lead to cheaper premiums for youngsters. That's stoking speculation that a wave of fintech companies will push into the market and disrupt the way insurers interact with customers.
Cell-phone or Internet companies could, for example, use the massive amount of data they hold on their customers to sell them car insurance, bypassing traditional brokers and price-comparison websites. Alphabet Inc's Google entry into price comparisons last year failed, but analysts say the web giant could come back and have another go.
"No doubt Google will figure out a way to come back," said Christopher Ling, a regional leader at Capgemini SA's insurance practice for the UK and Europe in London. "For O2, it's more dipping a toe in the water at the moment. Other ideas could be using mobile-phone data for home and health monitoring and the insurance associated with that." Google did not respond to requests for comment.
The insurance industry has long feared the entry of companies such as Google, Amazon.com Inc or Facebook Inc which have a closer relationship to customers - and above all better data on them. The potential disruption to the market is adding to pressure on providers already seeing their investments hurt by record-low interest rates.
Insurers are reacting to the challenge. Allianz SE CEO Oliver Baete has pledged to make Europe's biggest insurer "digital by default" to help boost productivity and retain clients. Thomas Buberl, CEO of Axa SA, told investors last year that "customers are now used to buying things at Amazon to interact with Google and Facebook, they are demanding the same from us and, as you can imagine, buying an insurance policy at Axa is not yet quite the same as buying a book at Amazon."
O2 has jumped into "what is undoubtedly a very competitive market," said Mark Evans, CEO of Telefonica's UK unit. It plans to use technology "to identify driver behaviour and therefore incentivise very attractive packages for those who drive responsibly." Telefonica also offers car insurance in Spain and has offered products in the UK since 2015.
Fintech companies are already a growing, if limited, part of the global market: 173 startups focusing on insurance got funding last year compared with 122 in 2015, according to venture-capital researcher CB Insights.
The key for any newcomer will be finding the right partner, Capgemini's Ling said. O2's insurance business operates through a tie-up with Peterborough-based insurer BGL Group Ltd, which is also behind insurance offerings by companies including UK funeral care to supermarkets operator Co-Operative Group Ltd and roadside-assistance company RAC.
"The market for UK consumer insurance has always been incredibly competitive and another one in the mix certainly won't help the margins," said Ben Cohen, a London-based analyst at Canaccord Genuity. "It remains to be seen how new entrants in the insurance market grapple with data-privacy issues."
Citigroup Inc analysts provided a wake-up call for the insurance industry a year ago when they suggested Google's parent should buy insurer American International Group Inc and turn it into a laboratory for innovation, possibly using the tech company's client data to set policy prices.
Alphabet shut down its Google Compare service, which included insurance, in 2016 after the site failed to generate substantially more revenue that standard search ads for the products, the Wall Street Journal reporter at the time. But Baidu Inc, Google's Chinese equivalent, and hedge-fund firm Hillhouse Capital Management Ltd formed a venture with Allianz in 2015 to provide digital-insurance services in the Asian nation.
"Monetising mobile data is an incredibly exciting proposition," Capgemini's Mr Ling said. "Other people will start to realise the potential of that in the same way as Google has realised the potential of monetising Internet traffic."