The endless crisis in the automobile insurance.

My experience in Spain, which I suppose is applicable to the rest of the countries of Europe and USA, is that the sector of the automobile insurance suffers a problem of uncertainty for about 15 years.    The repairs of the vehicles are more and more expensive because the technology is more and more complex, the manpower get more expensive too and the constant renovation of models influences very negatively on the cost of the spare parts. On the other hand, the amount of the compensations presents an unstoppable growth.    The consequence of all this is that the insurance policies are more and more expensive.    In a beginnig this is very positive thing for the sector, because it allows a bigger business volume and consequently the possibility of obtaining more benefits. The problem is that the permanent ascent in the costs implies a continuous adaptation of taxes that are not acceptable in the market.  On the other hand the guarantees of these policies are closely regulated, watched over and guaranteed by the own State. For this, it is very difficult to compete being based on the credibility and the trust, factors that traditionally were the key element of differentiation in the insurance marketing.    The traditional channels of sale, based on the personal relationships, have been obsolete; it is a too expensive product to sell it in this way.    The transparency of the market has increased, due to the existent easiness to obtain different offers and to be able to compare them using quick communication systems as the telephone or internet. This implies that the price is now unquestionably the main sale factor.      If we apply to this situation the pattern that Mcgahan proposes in its “Four Trajectories of Industry Change” we would see that our core assets are in danger and that therefore the sector is in a phase of “Creative” adaptation.    Until some years ago, it was assumed that the insurance companies could not influence in the risk of their clients, they limited to try to be guided to some markets with some certain characteristics and to defend their market by reducing their commercial or administration expenses or to fight to maintain an image of extraordinary service.    Those that opted for the first option are the “direct” insurance companies (Directline), creating a managerial concept that has spread in other sectors with the name of low cost activities.  But at the end there have been very few the companies able to stay in this market with a stable and reasonable margin of benefits. They have become a sector of specialized companies that have been able to adapt to work in a changing environment, at least for what is normal in the sector of the insurance in general.      But now the thing complicates much more, we have tools that allow us to influence in the risk of our clients and the handling of these tools have never been the nucleus of the activities of insurance companies. We would have entered in a phase of “Radical” change since as much our core assets as our core activities would have been obsolete.    In these cases Mcgahan recommends us to have a short term strategy, with an extreme supervision of the activities in the market, identifying it is the sector of the market that we can defend more easily.    My opinion is that in the market a system “Pay as you drive” will be imposed, just because it doesn’t seem that there is another alternative option that presents a similar compatibility with other big social problems that are demanding solutions in an urgent way. And although we will really have to wait to see how, when and who participates in this reorganization of the market, the truth is that nowadays we have tools that allow to make us an idea of how the events will evolve, a good reflection base is the studies of Christensen on the “Disruptive Innovation” and those of Rogers, about on the “Innovation Adoption Curve”.