Is this the insurance industry’s Kodak moment?

By Catherine Kargas, Vice President, MARCON

Kodak decline

Toronto, ON (Sept. 11, 2015) – Do you ever wonder why the executives at Kodak couldn’t see the threat of digital photography? After all, this was a huge, affluent corporation with access to abundant resources and intelligence. In fact, at its peak, the company employed 145,000 people and had revenues totalling $16 billion.

What you may not know is that a Kodak engineer, named Steve Sasson, invented the first digital camera. In an interview given to the New York Times, he characterized the corporate response to his invention as “that’s cute – but don’t tell anyone about it.”

It didn’t take long for digital photography to be discovered by others.

It’s not what you know, It’s what you do

In 1981, Kodak’s head of market intelligence, with support from the company’s CEO, undertook an exhaustive amount of research which assessed core technologies and forecast timelines for likely adoption. The report accurately predicted the replacement of Kodak’s established film-based business by digital photography and accurately forecast that it would take about a decade for the new technology to take hold. The good news was that Kodak had time to plan, to diversify, to transition to other more lucrative businesses, to develop new products that would generate profits for the company. The problem was that it did not.

Fuji was an important competitor of Kodak in the film business. Recognizing the threat of digital photography, Fuji’s executives reacted differently. The company diversified more successfully. Film representing 60% of its business in 2000, contributes almost nothing to Fuji’s bottom line today.

The truth will set you free, but it might not make you happy

Fast forward to 2015 and to a different industry: insurance. The industry faces numerous challenges and threats and many of them are technology related. One of the most important threats concerns auto insurance.

For the last few years, I have been invited to speak at several insurance industry events, including the Executive Forums (by the way, they are fantastic!), about changes in mobility of people and goods and their impact on insurance. In the last three years, industry reaction to the arrival of fully self-driving vehicle technology has evolved considerably. It has progressed from “You are nuts, this technology will never work” to “OK, it will happen, but not in my lifetime” to “It will happen, but the uptake will be very limited, as motorists will refuse to give up control of the steering wheel.”

In June of this year, KPMG released the results of a survey undertaken with insurance industry professionals to assess their preparedness for autonomous vehicles. The report states:

The conversion to autonomous vehicles may bring about the most significant change to the automobile insurance industry since its inception. As the way we drive and commute transforms, the amount, types, and purchase of automobile insurance will be impacted. The disruption to insurers may be profound, and the change could happen faster than most expect.

As many others who have evaluated the impact of this technology on insurance, KPMG forecasts “a new normal” within a decade. Despite this, the study concludes that 74% of insurance companies are not prepared for the change.

Strategy means looking beyond the windshield

The insurance industry is blessed with some strong strategists who will rise to the challenge and prepare their respective organizations for the significant changes that will certainly occur. And while no one has access to a crystal ball, insurers should be forecasting significant change in auto insurance within the next five to ten years.

At the 2015 Executive Forum, Aviva Canada’s President, Sharon Ludlow, demonstrated her keen understanding of what lies ahead in motor insurance: “we expect traditional motor insurance to become niche to obsolete within two decades.” The chart she shared with those in attendance indicated the availability of fully autonomous vehicles before 2025 but a significant uptake of the technology starting in 2025.

Hanging on to the belief that consumers will shun driverless vehicles is void of realism. Here are some facts that should be taken into consideration when evaluating potential interest in this technology:

  • The car is the single-greatest expense of most Western households (remember, unlike your car, your home is an investment that should increase in value over time).
  • Despite costing the average Canadian approximately $12-$13,000 annually to own and operate an average make/model, the vehicle remains idle 94% of the time.
  • Younger people are increasingly demonstrating an aversion to driving.
  • Our aging population, with ever increasing physical and mental limitations, is going to require to be driven.
  • Our population is becoming increasingly urbanized, preferring to avoid lengthy commutes.
  • Congestion has gotten so bad that driving is generally not pleasant. On the contrary, it’s downright frustrating.
  • People prefer to do anything but drive while they are in their vehicles. With increased connectivity, the number of distractions increases. This makes bad drivers even worse. Today, human error contributes to 93% of road collisions.
  • The uptake of new mobility options (including car sharing and ride sharing) is phenomenal. In fact, Vancouver and Calgary are the top two cities in North America in car sharing. With the recently announced expansion, Car2go’s (Division of Daimler) car sharing fleet in Vancouver is the largest one in the world.
  • Cities around the world are increasingly introducing policies to reduce the number of individually owned vehicles in their respective territories as a way to reduce the unbearable congestion and pollution. Helsinki, through its plans to introduce Mobility as a Service (MaaS) is targeting the end of personal vehicle ownership by its residents by 2020. Montreal is encouraging greater car sharing in order to minimize the number of individually owned vehicles. Jim Holland, Ford’s VP, Vehicle components and engineering, has stated that congestion will result in people not having a choice but to participate in car sharing.
  • Just about every auto manufacturer (and the supply chain) is working on the technology to automate as many of the features of the vehicle as possible.
  • Silicon Valley giants like Google and Apple have set their sights on the transportation industry and the huge profits that self-driving technology can bring to their coffers. There is an R&D spending and hiring frenzy to bring this technology to life. Why? Because this technology represents the potential to replace vehicle ownership with mobility on demand: a new business model that will generate immense revenues and profits for those who control it. This new business model means having access to a vehicle when you need one, through your smart phone, but without the headaches of driving, parking, paying for parking or other infractions, fuelling / charging the vehicle, bringing it in for maintenance, washing it, … paying insurance to use.

The changes might seem slow … Until they aren’t

Mobility on demand is expected to cost significantly less than vehicle ownership. So all the benefits, none of the headaches and all at a significantly lower cost. How many of your customers would reject that offer?

Not everyone will line up on day one but after the technology has had the opportunity to prove itself (months? a year? maybe two), the uptake curve will look like a hockey stick.

Like Kodak in 1981, the insurance industry has less than a decade to prepare for this paradigm shift that will result in approximately $20 billion of premium dwindling to a niche market in the years that follow. How will insurers prepare? How will brokerages prepare? Can all brokers start to target commercial lines business to make up for lost premium? Will this contribute to a significant consolidation in the industry? Will insurers prioritize diversification strategies?

The next few years are key to preparing the industry for the future. Complacency and beliefs that consumers will reject the mobility offers presented by the Googles and Apples of this world are clear recipes for failure.

About the Author

Catherine Kargas is Vice President at MARCON where she provides business strategy consulting advice to clients in both the private and public sectors of the economy. Catherine also serves as chair of Electric Mobility Canada, helping to promote sustainable transportation solutions. Catherine has worked closely with in developing leading edge projects and programs. She speaks frequently at industry events. Catherine can be reached by email at [email protected].


MARCON Management Consultants Inc. is a specialized market research, strategy and management consulting firm based in Montreal. For more information, visit

Source: MARCON