Technology Help Develop Vehicle Insurance MarketBy Alejandro Salas | Mon, 07/13/2020 - 05:00
In a market with a vehicle park of around 40 million, where almost 70 percent is uninsured, Mexico represents a significant prospects to increase insurance penetration. A great opportunity to grow the market is to focus on those people who have never had an insurance product and who drive used cars, says Leonardo Cortina, Founder and CEO of miituo. “There are several groups that have been neglected by the current insurance market, which means we have to develop products that can help to expand these niches,” he says.
In a contracting insurance market, Blanca Velázquez, Metropolitan Director of Quálitas, says it is also important to have transparency regarding costs, especially in these opportunity niches. “From a financial perspective, it is important to keep insurance costs affordable and personalize them according to different client profiles.”
Cortina says high prices are behind the market’s limited penetration, especially among those who do not use their vehicle much. As part of the innovation that insurance companies are implementing to reach untouched market niches, Cortina says miituo developed a vehicle insurance product that allows drivers to only pay for the kilometers they drive in a given month. “The basic idea was to break the traditional insurance paradigm. If clients are not driving their car, they should not have to pay for their insurance,” says Cortina. Proving that innovation can offer a way to reach these traditionally neglected niches, Cortina says miituo’s offering has successfully reached people who never had car insurance before. “Approximately 30 to 35 percent of our clients never had car insurance before miituo,” he says.
Still, bureaucracy and paperwork, as well as a general misunderstanding on how to acquire insurance continue to impede the segment’s growth. “It is not easy to contract an insurance policy and most people are not familiar with the process,” says Cortina.
Although innovations and national coverage have helped to grow insurance penetration, there are additional steps that the government and insurance companies could take to boost adoption of insurance in the country and reduce the accident rate. “Legislative changes to make insurance mandatory would greatly increase coverage and general awareness about the importance of insurance. Unfortunately, this is still not effectively implemented and some states are lagging behind, such as Mexico City and the metropolitan region,” says Velázquez. In addition to making civil liability compulsory for drivers, Cortina believes that the government could make it mandatory for every car that is sold at a dealership to have insurance. “The first thing would be to make civil liability compulsory for drivers. The government could take different measures to ensure this is enforced and impose a series of sanctions for those who do not comply.”
Beyond, laws and their implementation, there is also a need to understand the risks associated with driving. “There is a wider need to increase awareness about the risks of having an accident while driving and the harm this can cause to vehicle owners and others,” says Velázquez. “Eighty percent of all accidents are caused by human error, such as ignoring traffic signs, speeding and being on the phone while driving. Another 13 percent is caused by weather conditions and a mere 7 percent relates to car malfunctions.” Quálitas has focused on creating campaigns focused on promoting better driving habits and creating awareness on these issues.
Technology can also have an impact on reducing risks and the impact of accidents. Velázquez says that Quálitas has implemented technology tools such as satellite tracking to prevent theft, an accident prevention device that sends out alerts when a car makes a fast change in direction and even a camera that reads the driver’s behavior and allows the company to detect when the driver is distracted by the phone or falling asleep. “We have focused largely on using these systems for big transportation fleets. There are particular risks in this segment and prices of devices tend to be high. Our goal is to offer more affordable devices that can be fitted in a private vehicle.”
The use of technology can also lead to lower insurance premiums. “Currently, insurance prices are based on the accident rate for the car model and the area where the car is registered. However, we can gather more data to increase the number of variables to take into account,” Velázquez says. But the traditional world still offers room for growth. “We are analyzing the inclusion of offline channels, such as traditional brokers,” says Cortina.