Hello, thank you for your attention. This is the first "hardcore" relaxation at the beginning of 2024, the 210th original content of the Lian Qo team, and the extended reading part of Chapter 4 "Insurance Business Management in the Automobile Industry" in the book "Insurance Business Innovation in the Automobile Industry".
Last Monday's article "New Energy Renewal Rejected, Large Trucks Are Not Compensated." What did the owner do wrong?Received a lot of feedback from OEMs and dealer groups. Among them, a leader from a new power manufacturer mentioned that "now the insurance company is not new and renewed for new energy vehicles, what can we do as an OEM?"You can't affect car sales and users complain because you can't buy insurance!”
That's a good question.
Why is this happening?The source of the problem has to be thought about and answered by the vehicle manufacturers themselves. As the first relaxation at the beginning of 24 years, this article is the first to put forward the following views in the automotive industry:
1) Technological advancements should benefit consumers, rather than driving up maintenance costs and barriers.
2) The business logic of the once successful premium exchange and repair, in the era of electric vehicles, it is difficult for insurance companies to collect all the orders.
3) It is the insurance company that pays for the high maintenance cost, the customer uses the cost at the expense, and the brand itself is the victim.
Please enjoy the following.
Car Manufacturer's Accident Accident Car Logic
The leader has been asking: What should I do if the insurance company does not do new energy vehicle insurance?
In the past, automakers didn't have such concernsAs "Party A", it is necessary to negotiate with the insurance company about the cost, repair delivery, discount, original parts, etc., all of which are required by the insurance company. Why can you mention it?I have a premium in my hand!There are still ah, why don't insurance companies want it?The original story logic of exchanging more premiums for more accident car output value for more original parts seems to be no longer going on!What to do?For new energy vehicles, in terms of insurance, consumers jokingly call it "electric dad": using electricity does save money than burning oil, but all the savings are handed over to insurance!
In many of our past articles (see the end of this article), we have combined the auto insurance business with the accident car repair business to depict the positioning of the auto insurance business from the perspective of traditional automobilesInsured accident car business with resource leverage and sticky connection
The underlying logic of the insurance accident car business is the exchange of resources between auto dealers who take advantage of scenarios and insurance transaction matching opportunities and insurance companies who seek auto insurance. For automobile manufacturers and dealers (groups), on the one hand, it is the "commission fee" that the insurance company can give, and on the other hand, it is more important to pay the insurance compensation for the output value and accessories of the accident car. From the perspective of the business of the insurance accident car mentioned above, the following business logic is usually mentioned about why the insurance business should be valued:
More premiums = more accident cars sent for repair = more accident car maintenance output value = more parts sales amount
In the past ten years, with the growth dividend of the automobile market, the auto insurance business has also reaped a period of rapid growth. The increase in scale leads to an increase in marginal benefits and a decrease in marginal costs. Even if the standard of accessories and working hours is increasing year by year, driven by the growth of scale, the insurance industry has also silently accepted it, and pushed the accident car resources and output value to the scale and share of more premiums in the game with "car dealers".
In recent years, self-discipline and reporting have been combined.
1. The concept of commission and handling fees such as clear discount and actual deduction has successively strengthened the orientation of insurance companies to tighten costs, and the control and cost reduction operations of homogeneous accessories, remanufactured accessories, non-4S channel repair, differentiated channel loss assessment discount, repair and replacement and other loss assessment claims have become more and more obvious. Accident maintenance frictions between auto dealers and repair shops, the insurance industry and insurance companies continue to appear, and cases of repair shops jointly fighting insurance companies and maintenance industry associations sending letters to insurance regulatory authorities asking them to correct insurance companies' violations have occurred from time to time. With the increase in the penetration rate of new energy vehicles, in the face of new materials, new technologies and new models of new energy vehicle after-sales maintenance, battery repair and damage assessment, integrated body zero integer ratio, monopoly of intelligent network equipment, and direct maintenance channels other than sheet metal spraying have greatly pushed up the cost of new energy vehicle claims for insurance companies.
Figure: Tesla's all-in-one die-casting technology.
With the increasing share and ownership of new energy vehicles, insurance companies have three responses to new energy insurance: either raise premiums, pick business and pick customers, or simply do not do business.
The phenomenon of high premiums and difficulty in renewing new energy vehicles requires rethinking and re-examining the original business logic of insurance accident vehicles for the automotive industry.
1) The basic framework of the insurance accident car business
In order not to repeat the foregoing, this section has compiled the following logical diagram of the summary of the insured car business. The key link point in the diagram from the two industries of automotive and insurance focuses on "premiums".
From the perspective of the automotive industry, how do premiums come about?From the business dimension, it is divided into the number of underwriting units and the average premium, volume and price!
The perspective of quantity is subject to the size of the customer base and the distribution of the share ratio.
The dimension of price includes the impact factors of the policy**, such as the benchmark pure risk premium, surcharge ratio and adjustment factor. Among them, the benchmark pure risk premium, no compensation preferential coefficient and traffic violation coefficient are currently the results of the industry's unified inquiry. The surcharge rate and the self-pricing factor are factors that can be adjusted by the insurance company. For the automotive industry, the only thing that can affect the premium is the customer structure in the underwriting session (the most obvious is that the price of the car affects the size of the insured amount of car damage insurance), the combination of insurance types insured and the sum insured.
The number of underwriting units, share allocation, customer structure and insurance plan determine the level of premium from the perspective of automobiles, and are also directly related to the "bargaining chips" of cooperation and competition with insurance companies.
Insurance business income =Premium income + accident car maintenance compensation income
= Premium x Channel Expense Rate + Premium x Premium Accident Car Repair Ratio
= Insured units x average vehicle premium x (insurance company's channel expense rate + premium accident vehicle repair ratio).
Figure: Schematic diagram of the framework of influencing factors of commercial auto insurance revenue, cost and expense (maturity perspective).
Switching to the perspective of the insurance company and receiving the premium is the beginning of the business transaction game for insurance companies.
Premiums are the main business income of insurance companies. For the auto insurance business, in order to make a profit in underwriting, it needs to ensure that 100% of the combined cost of the combined expenses and comprehensive claims are compiled.
Insurance company's income = insured times x average vehicle premium
Insurance company's underwriting profit = premium - comprehensive cost = premium - (comprehensive expense + comprehensive payment).
= Premium x (1 - Combined Expense Ratio - Comprehensive Loss Ratio).
Comprehensive Fees = Insurer's Channel Fees + Insurer's Other Expenses = (Handling Fees & Commissions + Marketing Expenses) + Insurer's Other Expenses
Comprehensive Compensation = Insurance Company's Personal Injury Compensation Cost + Vehicle Injury Compensation + Other Claim Costs
Premium Accident Vehicle Repair Ratio = Premium Amount Vehicle Damage Payment
Since insurance, as a service equity commodity with financial leverage, does not have inventory costs and inventory risks, insurance companies find that the comprehensive cost ratio is close to or even more than 100%, and compared with the automobile manufacturing and distribution industries, they can make faster and more flexible decisions on whether to continue to operate. In addition to considering capital gains on premiums and maintaining operations, the insurance industry does not need to consider "liquidation sales" and the cost of capital.
The insurance industry sometimes sacrifices underwriting profitability for the sake of growth and scale. Since the adjustment of insurance policies** is subject to industry supervision and internal risk control, and the range and magnitude of fluctuations are limited, the business competition of insurance companies is more reflected in the above-mentioned customer acquisition costs.
Customer acquisition costs, which are made up of business expenses and compensation costs, are key to understanding the business strategy of the insurance industry.
Whether it is the expense paid or the compensation paid by pushing the repair of the accident car, in the logic of the cooperation of the automobile industry's premium accident car, it belongs to the "customer acquisition cost" of the insurance company to obtain the premium. Comprehensive expenses are the perspective of sales expenses and management expenses, which are competitive advantages externally and management efficiency internally. The amount of car damage compensation in the comprehensive compensation is the cost of the insurance company and the output value of the accident car maintenance for the "car dealer". The two parties of the cooperation face a premium of 100 yuan together, and the income of the car side is almost equal to the customer acquisition cost of the insurance party. One side wants to increase the income of the insured accident car, such as increasing the handling fee, such as expanding the output value of the accident car.
On the side that pays the cost, there are two key factors in accepting the cost: either sacrifice the profit level in exchange for a higher scale, or control the cost to maintain the profit.
In the era when the automobile market is growing rapidly year after year and the premium cake is getting bigger and bigger, as long as the first rate of cost is lower than the growth rate of the premium scale, then the high cost can also be accepted.
Insurance companies are not indifferent to the "CD-ROMs" and service hour and fee standards that auto brand manufacturers have adjusted year after year, and the "zero-to-whole ratio" of accessories that has been continuously pushed up by R&D and technology. On the one hand, the accident car compensation is used as a "resource" in exchange for more premiums, and on the other hand, it has never reduced its efforts to control the cost of compensation. In addition to influencing the overall insurance rate through the non-compensation preferential treatment coefficient and giving differentiated underwriting policies through the car owner's rating, for example, the three substitutions for the loss cost rate of vehicle damage control mentioned in the figure above: the substitution of vehicle damage repair and compensation methods, the substitution of accessories ** and damage assessment**, the channel substitution of maintenance service providers with different costs, etc.
In the insurance business of traditional fuel vehicles, the risk identification, actuarial, pricing and cost control of the insurance industry are relatively mature, and the game with the automobile industry is often reflected in the marginal comparative analysis of premium income and customer acquisition cost.
2) Marginal analysis of an insurance company's auto insurance business
Marginal analysis is a term for microeconomics and a method of economic analysis. It is the critical point when the additional expenditure and the additional income are equal, that is, the point at which the benefit of the invested capital is equal to the loss of output. If the organization's goal is to maximize profits, then this goal can be achieved when the additional revenue and additional expenses are equal.
It seems very complicated, the meaning of "extra" and "additional" at the margin, refers to the "last unit that has been added", or "the next unit that may be added", which belongs to the concept of derivatives and differentiation. For example:
The basic logic of marginal analysis is based on two concepts: marginal return refers to the income obtained for each additional policy, denoted as MR, and marginal return = sales revenue - variable cost;
Marginal cost refers to the increased cost for each additional policy, denoted as MC, business profit = marginal benefit - fixed costs.
When the marginal benefit is greater than the marginal cost, the benefit obtained by the first merchant by increasing the output of one unit is greater than the cost paid, so it is advantageous for the manufacturer to increase the output, and the total profit will increase accordingly. A necessary condition for profit maximization is that the marginal benefit is equal to the marginal cost. Conversely, if the marginal benefit is less than the marginal cost, production should be stopped (the more you produce, the more you lose).
Specific to the auto insurance market, there are many business entities, relatively standardized products (not completely homogeneous), and the industry concentration is high, which can be regarded as a more typical "oligopoly competition market" to a certain extent. Here's a simplest example for reference:
If the insurance company needs to pay 30 yuan for sales expenses and 55 yuan for the compensation cost in order to obtain a 100 yuan car insurance premium, the insurance company can leave 5 yuan of underwriting profit after deducting 10 yuan of operating costs and other expenses. When it is profitable, insurance companies will choose to seek to increase premium income or reduce operating costs and other expenses in the name of maximizing profits.
Due to the competition in the market, it is necessary to invest additional customer acquisition costs, and if you invest an additional 1 yuan in customer acquisition costs, you can get 1If the marginal premium income of 5 yuan increases, the insurance company is willing to choose to continue to pay additional expenses, or send the accident car maintenance resources to the "original" maintenance channel with high compensation costs in exchange for premium income. At this point, Mr mc.
Figure The marginal benefit is greater than the marginal cost, and the enterprise is profitable and pursues scale expansion.
Until the marginal cost is the same as the marginal benefit, at which point mr=mc.
If, the market is exposed to sudden variables and factors, which increase the marginal cost of obtaining premiums, and the marginal return is diminishing or even negative, then the insurance company will take decisive measures and no longer simply seek an increase in scale.
Due to the regulatory solvency requirements and the fact that there are no sunk costs in the insurance company's business model (such as inventory in the automotive industry), it is more convenient for insurance companies to choose "refusal of insurance" instead of "liquidation sale".
3) New energy vehicles are expensive
The logic of insurance business that is difficult to apply for is re-examined
The emergence of new energy vehicles has impacted the original business logic of insurance accident car business from all aspects.
In the era of fuel vehicles, automobiles are durable consumer goods manufactured by machinery. Once the product is sold, in addition to the product warranty or recall issues, the manufacturer and the consumer are basically in a state of disconnection, coupled with the traditional wholesale and retail business model under the authorized sales service of automobiles, showing the characteristics of "information asymmetry, B-C fragmentation, and channel is king" (Professor Zeng Ming's "12 Lectures on Intelligent Business"). From the perspective of risk pricing and compensation costs, new changes have taken place in auto insurance, resulting in the original business logic and actuarial system not keeping up with the changes and iterations of new energy vehicle risk exposure in a timely manner, which is manifested in the following aspects:
Benchmark Pure Risk Premium:The premium charged by the insurance company to pay the expected insurance indemnity. The current benchmark pure risk premium is based on vehicle type and coverage area, and the results are returned. Conventional factors to consider are the factor of slave vehicle, slave person and part of the journey. Among them, the vehicle factor will mostly consider the characteristics of different models, and conduct risk analysis for independent models based on vehicle driving data. New energy vehicles are in the initial and vigorous development stage, with a large number of new models and great influence, short time to market, and insufficient data accumulation, which makes the insurance industry lack the most powerful data support when analyzing pricing factors, and significantly increases the difficulty of timely and accurate estimation of risk costs for each model.
Accident rate:On the one hand, the insurance rate of new energy vehicles affects the benchmark pure risk premium, and on the other hand, the premium fluctuation of specific insured vehicles is adjusted through the no-claim preferential treatment coefficient.
Damage assessment criteria:Vehicle damage caused by accidental traffic accidents or natural disasters, whether it can be repaired, how much can be repaired, how much damage can be repaired, loss repair methods (repair or replacement), working hours standards, etc., lack of mature damage assessment standards and system support.
Vehicle Zero Integer Ratio:Due to the application of new materials and new technologies, manufacturers have improved the spare parts system of vehicles while reducing manufacturing costs. For example, the integrated die-casting body, the integrated battery of the body, and so on. Even if some details are damaged, they often face the direct replacement of integrated parts, which poses a great impact on the zero-to-whole ratio of the vehicle.
Economical maintenance:The cost of repairs is directly related to the cost of repairs. Maintenance cost = probability of collision accident x degree of collision loss x zero integer ratio of vehicle x substitutability of repair channel. The possibilities are macro probabilities, but they are also related to individual operating habits and the degree of intelligence of the vehicle (e.g., autonomous parking and assisted driving).The degree of loss is directly related to the design and manufacture of the vehicle, such as the replacement of the battery pack or the integrated body is directly related to the degree of damage assessmentThe vehicle zero integer ratio is simply the ratio of all the loading parts of the vehicle to the pricing of the whole vehicle, which is the cost of materialsThe substitutability of repair channels means that in addition to the original after-sales channels, whether there are other alternative service providers, the more alternative options are lower. For models with poor maintenance economy, increase the premium!
Yu Yang. Based on the RCAR crash test, the maintenance economy of new energy vehicles was analyzed.
and insurance risk[J].Insurance Theory and Practice. 2021,(8).
Yu Yang, the author of the figure above, compared the difference between new energy vehicles and traditional energy vehicles in maintenance economy, and the experimental conclusions also confirmed that new energy vehicles have poor maintenance economy and high maintenance costs. The author also analyzed: new energy vehicle parts are not provided separately, and the high cost of exclusive parts is also the main reason for the high maintenance cost.
To sum it up:The insurance industry has less data accumulation for new energy vehicles, is more likely to report crimes than fuel vehicles, has complex maintenance techniques and difficulties, and is difficult to unify damage assessment standards and scales.
First, the application of new technologies and new materials under the spare parts system makes the zero-integer ratio improve and the substitutability of parts becomes weaker, and insurance companies often passively accept the manufacturer's maintenance standards and systems. Reimbursement costs have increased significantly.
For the insurance industry and insurance companies, in the face of the rapid growth trend of new energy vehicles, on the one hand, they have to adjust the direction and even pay tuition fees to carry out the insurance business of new energy vehicles, on the other hand, due to data acquisition, actuarial pricing, business logic and regulatory constraints, the problem of high insurance rate and high compensation cost cannot be changed in the short term. So the insurance company chose the following way:
Increasing premiums is either through a self-pricing factor or by requiring coverage of a specified type of insurance and sum insured.
Select customers, and only select eligible customers for underwriting through customer scoring and information judgment.
Refuse to underwrite, for some brands and certain types of car owners, if they think the risk is too high, they will directly refuse to underwrite commercial insurance.
For practitioners in the automotive aftermarket, the original business logic of more premiums, more accident vehicle output value, and more accessories has encountered new challenges in the business of new energy vehicles. When the insurance company's expected underwriting profit is negative, and it is unable to make adjustments to product pricing and business logic in the short term, it will choose not to play the "premium accident car" consideration game with the automotive industry out of the perspective of risk aversion.
For practitioners in the automotive aftermarket, blindly raising the standards of spare parts and working hours of the plateau factory, blindly pursuing the integration of parts, blindly "strong" in the maintenance and replacement standards of parts, and blindly hoping that the insurance company will "pay" the full amount of after-sales maintenance of new energy vehicles, and can seek specific after-sales output value and parts opportunities in the short term. In the long run, insurance companies will make "rational decisions" out of their own interests in the face of the expectation of losses and the game of accident car compensation that cannot be fully collected according to the order.
For practitioners in the automotive aftermarket, when insurance companies choose to select customers or even "refuse insurance", it means that there is a lack of commercial confidence in the risk management of specific brands and specific types of car owners. At this time, wishful thinking to seek "understanding" or even "sympathy" from the insurance company cannot replace the assessment of underwriting losses, nor does it conform to basic business logic.
1) To reduce maintenance costs, the biggest beneficiary of technological progress should be the car owner
Maintenance technical barriers, car manufacturing process barriers, and maintenance channel barriers are directly related to the transfer of after-sales maintenance output value and spare parts profits to insurance companies, in fact, the final payer is still the "car owner".
Insurance companies either raise premiums or reject the form outright, making the car owner pay for the eventual high repair costs. And car owners will eventually feedback the pressure to car companies or dealers because of the "insurance discrimination" they have received.
For the traditional fuel vehicle industry, new energy vehicles are cornering overtaking and technological progress. The greatest value of the application of new technologies, new processes and new materials should and must be to bring more benefits to consumers. This has been seen by leading car companies and is calling for a reduction in maintenance costs.
For example, Tesla CEO Elon Musk mentioned at Tesla's Q4 2022 earnings report** meeting: "We want to minimize repair costs in the event of a Tesla collision and reduce the cost of Tesla insurance. Previously, we didn't actually understand this very well because other insurance companies would cover the costs. In fact, in some cases, the cost is unreasonably high. ”
For example, at Xiaomi's automotive technology conference, the interpretation of the technology and advantages of integrated die-casting also mentioned the pain points of maintenance costs: "Three-stage repairable design is adopted: integrated die-casting rear floor + medium and high-speed collapse area + low-speed collapse area." In low- and medium-speed collisions, there is no need to replace large die castings ......”
To sum it up:In the era of fuel vehicles, the tacit understanding between the automotive industry and the insurance industry on "premium exchange and repair" benefits from the experience and data of mature industries on the one hand, and on the other hand, the growth dividend of the automotive industry offsets the pressure on the insurance industry on the cost of claims and underwriting profitability. Based on the premise of being profitable, insurance companies choose to accept high marginal costs in exchange for high marginal benefits. When the automobile curve enters the new energy era, the original experience data, pricing system, and product logic of insurance are difficult to adapt in the short term, and at the same time, the "monopoly dividend" of the automobile industry in terms of maintenance standards, accessories, maintenance channels, etc., makes insurance companies suffer from profit pain. The insurance company chose "risk aversion", and the original logic of insurance accidents in the automotive industry is facing failure.
How to reduce the cost of vehicle maintenance and how to make the customer's accident risk get a reasonable consideration is a change in the thinking mode of the automotive industry, and it is the greatest value output of technological progress to customers.
Auto insurance is the downstream of the automobile business, but it is also in business.
The auto insurance business is a redistribution of resources in the industrial chain, but the zero-sum game will not last long.
The insurance company's "customer acquisition cost" is still paid by the car owner!
For more innovative content of insurance management in the automotive industry, welcome to join the new book co-creation camp, different perspectives, negation of negation, the industry's only professional auto + insurance cross-border insight knowledge service organization, in the new year, we will evolve and iterate together.