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Are Israeli Insurance Companies Ready for the EV Revolution?

hello — Thu, 03 Mar 2022 13:26:33 +0000

Across the world, the electric vehicle (EV) market is booming.

In 2021, international sales for EVs (which include plug-in hybrids and battery-only vehicles) rose to 6.75 million units, an 108 percent increase from 2021. This year, the EV market share is expected to rise to 12.5 percent of the auto industry, with 10.4 million vehicles sold.

The surging price of gasoline is just one of the factors fueling the buying spree. A recent study found that EVs are now three to six times less expensive to operate than internal combustion engine (ICE) automobiles.

In Israel, the market is small but strong. Currently, there are about 8,000 EVs on Israel’s roads, with Tesla holding a 50 percent market share.

Israel, Newbie in the EV Insurance Market

Surprisingly, Israel’s insurance industry has yet to fully appraise the EV revolution. Israeli insurance companies continue to price EV policies like all other vehicles, despite their radically different makeups. EVs lack internal combustion engines, gas tanks, exhaust systems, carburetors, and a whole host of other parts we associate with traditional automobiles.

The lack of differentiation in the Israeli insurance market is due to three primary factors:

Ignorance about the mechanics of EVs
EV and ICE vehicles look nearly identical, a decision made by automakers
A decision to price EV insurance with a long-term goal to increase the number of EVs under policy, anticipating greater growth in the years to come.

Still, there is a reasonable explanation for the approach of Israeli insurers. Increasing the market share of electric vehicles allows insurance companies to collect data on the unique risks and hardware of EVs. For instance, are electric vehicles less prone to traffic accidents? What are the costs of repair? Are spare parts readily available? Currently, most of this information is based on information gleaned from intelligence outside of Israel.

Right now, the Israeli driver is benefiting from the insurance companies’ learning curve. But it’s only a short-term benefit. Globally, insurance on electric vehicles is 15 to 20 percent higher than ICE vehicles. In time, the Israeli market will catch up.

More Expensive Parts Lead to Higher Claims

It’s important to understand the reasons behind higher insurance premiums for EVs.

For one, electric vehicles are more expensive to manufacture, a result of advanced technology and pricey sub-systems present in every EV (parts that are absent in ICE vehicles). An EV is also built from a smaller number of parts than ICE vehicles. Therefore, in the event of an accident, it is probable that a larger and more expensive part will need to be replaced.

For instance, for some vehicles the lithium battery of an EV accounts for about 25 percent of the vehicle’s value. In the case of a severe accident, if the battery as well as secondary assemblies need replacement, the chances for a total loss claim increase significantly. EVs are also heavier than traditional vehicles, which means that the passengers of EVs are more protected during a crash but those in the other vehicle are more prone to injury because of the EV’s weight. These factors, of course, have an effect on the price of a policy.

A 2020 study from the Highway Loss Data Institute found that electric vehicles were tied to about 20% fewer claims than similar vehicles running on gas. The US National Bureau of Economic Research (NBER) reasons this is because an EV can slow down faster than a traditional automobile. As well, since the battery of an EV has limited range, and many countries (including Israel) don’t yet possess a national charging infrastructure, road time, and therefore the potential for accidents, decreases. But as might be expected, when EVs do get into accidents, they do incur more damage.

Other Risk Factors

In addition to gauging the risk associated with accidents and replacing parts, Israeli insurance companies must also take into account factors that accompany IOT-enabled devices. Cyber-hacking of vehicles, for example, is a small but concerning issue. In the absence of regulatory laws in Israel, it is unclear at this time if the insurer will be liable in such an incident and how that might affect the cost of policies.

Supply and demand also plays a role in setting prices. The worldwide supply chain crisis, and the Covid-19 pandemic, has resulted in production interruptions and a shortage of raw materials, including chips, spare parts and other components. In the interim, this shortage will increase the cost of insurance.

Growth Potential Is Great

The widespread adoption of electric vehicles has aroused enthusiasm among buyers who are thirsty for innovation and want to do their part in protecting the environment.

Insurance companies that understand the growth potential of the electric vehicle market, and want to insure these cars, must undertake an in-depth study to understand the risks associated with EVs while continuing to collect information from existing policies. In this way, insurers can determine a long-term strategy while pricing policies in the immediate and interim phases accurately. This approach allows growth in the EV insurance market and protects companies from incurring significant losses.

The post Are Israeli Insurance Companies Ready for the EV Revolution? appeared first on Finalytix.

The AI Revolution Is Here: Why Are Insurance Companies and Banks Lagging Behind?

hello — Thu, 03 Mar 2022 13:26:31 +0000

Insurance companies and banks are tantalized by the capabilities of artificial intelligence (AI) but have been slow to adopt a technology that could revolutionize their strategies in pricing, claim handling, fraud detection, and business planning. Generating added in both traditional and new business lines.

According to a June 2020 study commissioned by the Economist Intelligence Unit, “The Road Ahead: Artificial Intelligence and the Future of Financial Services,” which surveyed 200 executives at banks and insurance companies:

While there is a strong degree of confidence in the benefits of AI, the reality is that the technology is not largely in use: more than half of respondents say AI is not incorporated into their business’s processes and offerings, with only 15% saying the technology is used extensively across the organization. However, the benefits that have already emerged combined with respondents’ plans to double down on AI investment in the short-term show this technology is slated to drive a massive wave of future growth for the financial services industry.

The benefits are crystal clear.

What company wouldn’t want to:

Retain customers based on AI-powered churn prediction
Improve business results using price optimization
Shorten products’ “time to market” using AI and automation
Reduce losses due to fraudulent claims both in terms of operations (save money on attorneys fees) and claim payouts

But as much as traditional financial institutions believe in the promise of AI, the road to adoption has been blocked by challenges, both real and imagined. Let’s take a look at some of the factors that have prevented financial institutions from incorporating AI into their operations.

Professional knowhow

Companies operating in the tech sector today were born in the era of analytics and naturally understand the advantages of AI.

AI is an integral part of their day to day operations and they employ data scientists who use the technology in their research and development units to stress test scenarios and play out future probabilities. In contrast, banks and insurance companies are populated by managers who reached professional maturity in the pre-analytics era. These talented managers know that AI is critical for their competitive futures, but do not understand how best to apply the technology or incorporate it into their system infrastructure.

Instead, they turn to third party vendors who build them expensive AI systems that ultimately fail, for the following reasons:

The technology manager (CTO) who is responsible for the project lacks sufficient experience in the AI field. They are thus susceptible to highfalutin promises and overspending for inappropriate equipment.
There is a weak link between the technology department and the business units that will ultimately utilize the AI systems. Hence, the expensive AI solution is underutilized.
Board members fail to understand that investment in data science (DS) is a long term process. After a few months without ROI, they abandon the project and question the technology department’s priorities.
It is challenging to recruit a quality DS team and retain them long term
Knowledge silos – wherein the DS unit holds all the institutional knowledge – are nearly unavoidable
In many cases the AI team doesn’t have any stakeholder presence on the management team, and they are assigned tasks that could be completed by other employees.
In many cases the definition of AI and DS are not clear to relevant stakeholders. Therefore, there is confusion surrounding its capabilities and functions.

The global consulting firm McKinsey & Company reports that 9 out of 10 attempts at integrating AI fail, and only 6 percent yield any economic value.

A plan for incorporating AI

Despite the challenges, some financial institutions have attempted to build data science departments internally or to design a road map to incorporate AI capabilities. But establishing an entirely new division is a laborious process that takes careful planning and the delineation of clear goals.

First among these, is establishing a team that will combine different stakeholders in the process. For example, the relevant business unit, a technology professional, and a data scientist.

Second is the clarification of expectations, including setting a schedule for AI-implementation, expected return on investment, fit to the product ecosystem, and the ability to implement the solution throughout the organization. . In this step, the owner must convince other C-suite executives that AI is a long term investment that will require the careful budgeting of resources and the expectation of unforeseen expenses.

However, if a financial services company can overcome these challenges, there are numerous areas inside and outside the organization , like those listed above, that AI could improve.

In addition, data scientists are now imagining the possibilities of other, more advanced capabilities of AI, including:

Augmented reality: This would allow insurance companies to virtually inspect homes after a file is claimed or confirm a vehicle’s safety features before providing a quote.
Frictionless business: AI could help businesses learn consumer habits, make recommendations, and simplify how products are promoted.
Data veracity: Insurance companies could use more accurate data to make better business decisions.

Whatever the reasons, as long as traditional insurance companies and banks struggle to adapt to the new era, they will fail to deliver higher quality services. Moreover, they will expose themselves to stronger competition from current and future ecosystem players who will seek to disrupt the market by creating higher standards and better products.

Financial services companies would do well to quickly build AI capabilities and join other industries in bringing better services and information to their customers.

The post The AI Revolution Is Here: Why Are Insurance Companies and Banks Lagging Behind? appeared first on Finalytix.