Insurance case study

Insurely group is one of the largest banks in France. It is also a considerable player in the insurance
industry, focusing on car insurance.

Insurance business has long passed its heydays as with ever increasing competition, thin margins,
and new emerging players, the profitability of car insurance has been in a steady decline for the
past few years and all previous efforts to turn things around have been in vain.

The new players have taken noticeable cut from younger customers by providing better service
through mobile, easy to understand insurance premiums and quicker refund service. They primarily
use Artificial Intelligence and Data Analytics to calculate premiums better.

The group insurance and banking Chief Executive Officer (CEO) understood that with this trend
becoming more prevalent, Insurely car insurance will become unprofitable very soon if some drastic
changes are not made...

Because of this, the group CEO hired a new car insurance CEO to turn things around. The new CEO
came from an insurance start-up that focused on data analytics and mobile solutions for car
insurance. The new CEO soon hired his second in command CDO (Chief Data Officer) to reinvent
car insurance premiums to modern world standards. They immediately worked on new business
model for Insurely car insurance with a tool that would help them to achieve this.

The new tool they acquired was recently created car analytics engine: on-board computer
analytics (OBCA) allows tracking every movement done by the car in real time. Data incudes such
basics as driving speed and specific information such as degrees of steering wheel turned (see more
in Appendix). Several car manufacturers have already installed it as standard in their new cars to
help them better understand car performance and timely uncover any technical faults.

All this information is gathered by company Auto Lab Inc. which then combines all information,
provides comprehensive analysis of main KPIs & resells it to other parties. Insurely being one of the
first that has installed it, has 6-month free trial that is about to expire.

This data has allowed you to create as one of the first incumbent’s new product pay when you drive.
This completely changes the landscape of car insurance as historically a client would buy insurance
for a specific time period regardless how much the car is driven yet under the new system insurance
company gets revenue only when the car is driven.

This has been accepted very positively by younger consumers who were eager to use such
insurance policy as they were mobile and with an ease of the app, they could take insurance for
cars that had OBCA system pre-installed. In addition, such system finds favor to car sharing
companies that can offer the insurance cost at much lower price.

During these six trial months, the CDO noticed that Millennials & Gen Z use it mostly; older generations
do not want to hassle with this system, yet they feel that they get a worse off deal then their younger
customers.

After 6-month testing period, the financial numbers did not look promising, the revenue from car
insurance has gone down, this was especially true for millennials who now paid smaller amounts.

despite significant increase of new customers of about +6.7% within this time period which far
exceeds typical customer acquisition trends in the industry.
This made sales and insurance underwriter employees unhappy as they felt that they brought in new
customers, yet they could never reach bonus salary (the bonus salary was pegged to total profit
generated by sales underwriter) and felt that company was destructively undercutting the market,
leading to disengagement of many in the ranks.

In addition, they saw how much younger employees that were in data science department were
getting increasing power in the company, had greater benefits and promotions. In addition, the
Chief Commercial Officer (CCO) noted: “Many new recruits were added in the past six months to
develop this loss-making product.” This only fueled old guard employee’s disengagement.

To top off all the problems, the free trial is about to expire which will make the business even less
profitable. With calculations from Finance team, the Chief Financial Officer (CFO) noted: “The
insurance business will turn negative for Millennial generation segment. As we have invested so much
money to build the new product that when we start to pay for the database, the revenue from
insurance premiums does not offset this cost.” CDO disagreed but could not prove CFO incorrectly
assessing the profitability. He knew that product was developed over the course of 5 months and
no significant expenses have been added since. His team reckons that new investments will be only
few years down the line.

After six-month monitoring period the Chief Data Officer must present the results to the top
management. He is perplexed and thinks how to reconcile the two camps that have emerged from
this change, one camp of his team and the car insurance CEO who believes that this is the future of
insurance and future of staying in the business and Commercial and Finance department who have
seen this “experiment” as financial waste.

Lastly, CDOs team has created a new product that would significantly improve company’s
profitability by reducing risk of drivers that are prone to accidents. Data scientists looked through the
OBCA data and deconstructed patterns of driver behavior that typically gets into accidents. They
boiled them down to 10 simple rules (appendix) which were at the core of the new product idea.

The idea is to provide cheaper insurance if the customer agrees to abide by the 10 safe driving rules.
OBCA would indicate if any of the rules is violated if insurance claim comes in. If any rule would have
been breached during the drive when accident happened, then insurance would not be paid out,
otherwise everything would be covered in a fast-track manner.

CDO & CEO thinks that this will greatly help the business, yet they ponder whether to stir the things
inside the company even more.

Understanding that already the existing product creates divide in the company, the CEO calls in
CDO to discuss the matter. This team must decide multiple issues on the table:

• Prepare a comprehensive written analysis of major challenges in the insurance industry &
what can the company do about it? - Deadline is 22rd August 23:59
• Prepare a video presentation to the Board of Directors on your future action plan regarding
the situation that company has and the way going forward. You can think about the following
points, but you have free reign on how you want to present. - Deadline is 28th August 23:59
o Does Insurely continue with new insurance policy or revert to the old model, why so?
o What would you have done differently six months ago in CEOs place – what learnings
can CEO derive from this experience?
o What should be CEOs action plan for the next six months? Provide a comprehensive
suggestions list and action plan.
o Should your team introduce the new product “pay how you drive” to the banking and
insurance CEO, how will you sell-in the new product and how to reconcile different
viewpoints of Pay as you drive product.
APPENDIX
10 commandments for car insurance

1. Thou shalt not drive under any substances (alcohol or drugs)

2. Thou shalt not drive and use smartphone
3. Thou shalt not drive in sleep deprivation or exhaustion
4. Thou shalt not drive in speed above the limit
5. Thou shalt not drive in extreme weather conditions
6. Thou shalt not drive aggressively
7. Thou shalt not drive too slow creating unnecessary traffic
8. Thou shalt use turn signals in a timely manner
9. Thou shalt maintain safe distance to the car in front
10. Thou shalt not drive quickly in reverse

Data provided by OBCA:

Database has data entry for every second for the time engine is running for each car that has OBCA.

• Car ID (model, year, engine, car specifications, safety features, etc.)

• Time/Date
• Car GPS coordinates
• Speed/RPM
• Acceleration speed
• Breaking pressure
• Fuel & engine heat level
• Amount refueled and where car has been refueled
• Outside temperature & rainfall (in ml) & visibility (if car has adaptive cruise control)
• Average and instant fuel consumption
• Time taken between trips
• Indication if a different person is driving (through weight & height sensors)
• Duration of a trip & total time driving (per person)
• Trip length & total mileage (per person)
• Steering wheel turning trip & intensity
• Indication if driven with any technical errors or service requirements
• Time between car service & which services are performed
• Lane changing frequency
• Breaking & acceleration frequency
• Indication if driving on red light (for cars that have sign recognition system)
• Lane keeping quality (measured through steering wheel behavior & more data provided for
cars that have sign recognition system)
• No of overtakes & success rate (calculated through car driving behavior, success rate
measured as overtakes without need to suddenly break & get back in previous position)
• # of times car driving safety systems have engaged (ABS, ESP, DPS, CitySafety, Active steering,
Lane departure signals, etc.)
• % of commute drive & touring drive (commute drive calculated through GPS coordinates, all
other time indicated as touring drive)
• Comprehensive Accident information (when and where happened, damage intensity, driver
key characteristics (gender, age, driving license issue date, etc.) speed, breaking, turning at
that time, etc.)
Organizational structure of Insurely group: