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AXA's David Williams on big data and the future of motor insurance

David Williams, technicaldirector at AXA unitAXA Insurance, spoke to S&P Global Market Intelligence about the outlookfor self-driving cars, regulation and why he's likely to know if you're readingGardeners’ World magazine.

The following is an editedtranscript of the conversation.

David Williams
Technical director, AXA Insurance
Source: AXA

S&P Global MarketIntelligence: What impact will self-driving cars have on the insurance industry?Elon Musk, the CEO of Tesla Motors, recently said thatwithin two years people will be able to summon their car from across thecountry.

David Williams: If you look at the variousstages of progress towards autonomous vehicles, from an insurer's perspective afully autonomous vehicle is great. What's not great is something that at timesrequires a driver to interact. That approach lulls the driver into a falsesense of security. Certain stages of the progress towards autonomous are a bitrisky.

We'reactually in discussion with motor manufacturers and the regulatory bodies inthe U.K. and Europe about certain stages being bypassed, so that we move up toa certain level in providing driver assistance but then move completely toautonomous vehicles, trying to avoid that messy in-between stage where you havea driver who might be reading a book and then is given 30 seconds to get backin control. I suppose we'll see a general improvement in road safety, with areduction in premiums, but there will be one stage, just before full autonomy,that will present an increased risk that we're quite concerned about.

How will insurance contractschange?

We'llsee premiums move to product liability, commercial insurances, cyber products —because the cars may be susceptible to hacking — and therefore our view is thatmore premiums will move away from traditional motor insurance. One of thebenefits that we have at AXA is that we're not heavily reliant on motorinsurance. We write billions of pounds of it globally, but we also write thoseother lines of business.

Wesee the premiums reducing because of the much safer environment, and we see thepotential for it to move towards a product-liability-oriented distribution andmix, but that doesn't worry us. We want to be involved in the discussions andthe lobbying and the influencing.

Thegovernment may want to regulate to the effect that autonomous vehicles must becovered by one all-encompassing mix of motor liability and product liability,cyber, personal injury, and so on. Some law firms thrive on that uncertainty.The idea of there being any doubt as to who's responsible could just end upwith several years of litigation and massive fees. That's not good for the manin the street, who will suffer higher premiums.

Are the monoline motorinsurers going to be in real trouble in 10 years' time?

Yes.There's too much responsibility potentially transferring to the manufacturer.Monoline motor insurers will have a problem if they don't recognize wherethings are going and begin diversifying. Their existing business models willhave to change.

What does the growth of bigdata mean for AXA?

Thereality is that we as an industry are at a relatively early stage in that respect.If you look at conventional insurance rating models, they could be enriched andin fact replaced by using external data sources. In the past, we've alwaysrated things on the basis of age, for example, or sex, or postcode, or car. Butit's also been established that magazine subscriptions have a predictability.So someone who buys Gardeners’ Worldmight be a safer driver than someone who buys Hot Hatch magazine. Now, I know for a fact that they use magazinesubscriptions as a rating factor in the U.S.

Whatwe're doing at AXA is investing much more in actuaries and data scientists. Weare gathering whatever data we can get, like telematics boxes and externaldata. Insurance companies of the past couldn't cope with that level of data.It's a huge amount of data, and not all of it will be useful.

We'vegot something we call the Data Innovation Lab, and that's staffed by reallyout-there, extremely capable actuarial data scientists, who sift through it andfind patterns. You can use big data to improve the claims process, or tounderstand things that your customers are interested in. I'm standing here withan iPhone, a Fitbit health band and an Apple Watch. All that information isdrifting out into the Internet. It can be tied into insurance bundles.