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Jun 2020

Driving the business of mobility

Source: Middle East Insurance Review | May 2020

As the trend towards shared mobility gathers momentum, insurers need to understand how this is shaping the mobility market in the Middle East and how to adapt to these changes effectively and capitalise on the opportunities the new ecosystem will create.
By Cynthia Ang
Governments in the Middle East, led by Saudi Arabia and the UAE, have been making significant efforts to accelerate sustainable mobility in their cities. They are stepping up the development of futuristic mobility solutions as new sustainable cities emerge. For example, Masdar City in the UAE and the brand-new NEOM in Saudi Arabia both boast 100% green transportation systems, in which shared mobility plays an important part.
Shared mobility is a catch-all term for transport services where the means of getting around is shared among multiple users. Such services include car-sharing providers, ride-hailing companies, carpooling services and bike-sharing platforms. 
The concept has grown significantly in the Middle East in recent years due to the rapid changes in the availability of digital information and smartphone-based mobility apps, a rising cost of living in urban centres, and public interest in embracing sustainable, eco-friendly lifestyles. 
Demand drivers
In the context of new mobility, the business models are built on the premise that a newer generation of users, especially the millennials and younger generations, would much prefer carsharing or ride hiring rather than actually buying a vehicle. Sharing can create much more efficient patterns of network use at costs that are less than private car ownership, which comes with a long-term commitment, maintenance costs, registration and insurance fees, and often a hefty loan to pay off.
The Middle East has one of the youngest average age populations in the world, with a rapid understanding of technology and a desire to advance technology side by side with green initiatives, said Mr Anthony Cerchiai, head of general insurance at Nexus Insurance Brokers. “They are the generation that are acutely aware of the environmental damage caused by traditional travel methods. These beliefs sit comfortably with the idea of ownership of a desirable car as a status symbol, but sharing a low emission or electric car is their prime choice when it comes to essential daily mobility. 
“In addition, congested cities, lack of parking spaces and the associated costs and car maintenance are all factors that contribute to the allure of a shared-mobility option,” said Mr Cerchiai.   
The trend of cars being increasingly perceived as a means of transportation rather than as vehicles to aspire to own is a key contributor to the rise of shared mobility in the Middle East, said Mr Haris Mylonas, ADNIC’s executive vice president – consumer underwriting & reinsurance. Shared mobility has become a more cost-effective option, particularly for younger demographics such as Gen Z and Y who are very technologically astute and versatile, he said. 
The growing influx of expats who come to the region is another growth driver, said Mr Mylonas, pointing out that “this sizable number of mobile expats are accustomed to shared mobility – it’s a way of life for them”. 
The evolution of shared mobility in the Middle East will continue to be driven by global as well as local, specific trends, said Mr Nicola Garelli, CEO of Beema Insurance. At the regional level, he said Middle Eastern countries have strong roots in taxi services, thus there is a natural evolution of behaviour of residents adopting ride-hailing services. 
He added, “A few elements will increase the speed of adoption: the availability of last mile, micro-mobility to complement the public transport; a change in the regulatory environments, the rise of enabling new services; and the presence of a younger population willing to experiment with a novel type of relationship with car ownership.”
However, the outbreak and spread of COVID-19 has significant impact on the mobility behaviour of people. As the number of cases soar, many countries in the Middle East have imposed strict lockdown restrictions. Not only are most people staying home, but those who do need to travel are wary of using shared vehicles which could be a potential source of transmission.
Mr Mylonas said, “Even when restrictions are lifted in relation to COVID-19, there may be constraints on how many people can travel together that could impact shared mobility. Even if there aren’t, a wariness of using shared mobility due to health fears could discourage certain people who were previously regular users.” 
Impact on insurance
As shared mobility gains traction in the Middle East, insurers will need to modify their products and services, go-to-market approaches, and business models to effectively meet the changing and distinctive needs of customers.
Mr Garelli said the change in car ownership and driving behaviours will inevitably require an adaptation of the product offers, “on one hand to make the policies more aligned with the vehicle usage, while on the other, to ensure that the right level of mutualisation is in place and that the sustainability of the industry is not jeopardised”.
With the rise of new mobility platforms serving shared mobility such as electrical scooters and autonomous vehicles, new risks will emerge, and the industry and its regulation will need to respond with the required flexibility, he said. 
Such new risks may include: the fleets of shared vehicles will need to have a progressive premium, more linked to the underlying business drivers/revenues of the platforms; the owners of mobility assets (ie, shared cars) will have to be willing to transfer the insurance premiums to the end users based on the individual risk; the electrical scooters and their drivers will need to be insured on per-trip basis; and the autonomous vehicles will require a new definition of responsibility and of the driver risk in the underwriting models. 
The change is also expected to impact the traditional sales channels, as a general lack of investments, technology capabilities and consumer understanding will reduce the relevance of marginal underwriters and of multiple intermediaries, said Mr Garelli. “Beema is designed to ‘insure the new’ and will continue evolving and enriching the offer to respond at best to this changing environment, supported by a diverse, technology-savvy and customer-centric team.”
The industry response
The insurance market is rapidly changing, and has been adapting to new insurance needs, said Mr Cerchiai. Insurers have already introduced the ‘pay as you drive’ model, whereby the policyholder is charged a premium per kilometre of use. There are also convenient policies for limited mileage users on full comprehensive cover. With these innovative insurance policies, he said the insurer is rewarding careful drivers and effectively charging for use of the vehicle. 
Mr Cerchiai said, “Innovative motor insurance policies are offered to shared vehicles as well, in the same way the driver is protected and pays only for his driving usage, making the premium cost a fraction of the overall cost of the rent. Furthermore, these types of insurance are pre-written online contracts, are simple to understand and accepted directly on the mobile phone or tablet.  
“We predict that quite soon all the motor insurance policies will be shaped using the same principle of the shared mobility policies on a ‘pay as you drive’ premium.” 
Mr Mylonas noted that the shared mobility industry is still somewhat in its nascent stage when it comes to the motor insurance business, “but we anticipate less tailor-made individual insurance solutions and more commercially commoditised insurance propositions”. 
There are approximately 1,000 shared mobility vehicles available in the UAE, of which ADNIC insures around 200, he said. “However, given the nature of risk compared to our collective experience in either retail or fleet motor insurance, the pricing of these vehicles differs from the rest of the portfolio. 
“When it comes to pricing of shared mobility vehicles, it is too early to give a detailed price comparison, but we expect the pricing for this segment to differ from the corresponding pure individual retail automobile level,” Mr Mylonas said.
The current lack of a well-shaped, flexible regulatory framework encompassing all the aspects of shared mobility might slow down the offer, said Mr Garelli. 
At the same time, a still immature set of protection measures for consumers, from an insurance point of view, might reduce the ability for services to scale up quickly, Mr Garelli added. “The presence of gray areas in the driver responsibility and liabilities when using shared platforms such as the electrical scooters and a lack of uniformity in the safety requirements between countries make the usage less seamless and the adoption slower.”
Mobility outlook
As the shared mobility is set to drive meaningful change in the transportation ecosystem and auto insurance business, stakeholders need to understand market challenges and develop a strategic plan in order to stay competitive. 
Mr Cerchiai said the local transport authorities need to regulate the shared mobility to protect the general population from becoming disenfranchised by companies seeking profit over service. “By regulating and incentivising shared mobility schemes, they can have far greater control over where they need to prioritise mass movement of people versus keeping the centres free of traffic and people moving.”
Shared mobility is not really a new concept as buses, trains and other forms of public transport have been around for some time. But it is the new technology that makes smart mobility ‘smart’ – something that is already happening in our cities, said Mr Cerchiai. “New options of shared mobility are growing, and future cities will only bring more. The real challenge is transporting as many people to their destination with the least acceptable impact on their pocket, time, damage to the environment and cost of new infrastructure.” 
Local transport authorities will need to find the balance between profitability and serving the public at large, he said. “Further growth in shared mobility will depend on how effectively the industry eliminates existing customer pain points. For example, vehicle pooling can create uncomfortable dynamics among passengers who are basically strangers, while a solo ride-share commute may be too expensive for most people to use daily.”   
Another aspect is that there is an ardent quest to improve the performance and quality of public transportation in many parts of the Middle East, and that could impact the growth of shared mobility as well, said Mr Mylonas.
Shared mobility solutions – together with autonomous vehicles (some electric-powered), adaptive traffic signals that can sense current conditions and adjust to improve traffic flows, micromobility options, and airborne taxis – will play an integral role in a linked network of the city transportation in the six GCC countries, according to a study by Strategy& Middle East, part of the PwC network. These forward-future initiatives will work together to create a faster, more sustainable, and more efficient mobility system in the region. M 
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