Assessing the megacity’s impact on the insurance industry is a fascinating challenge. In a megacity, where there are aggregations of business and personal consumers, many different forms of distribution or buying groups may emerge, whether formed by an insurer or intermediary, or self-formed because of proximity. For example, the residents of a 60-story condominium could form a buying group solely for the purpose of sourcing their domestic insurances and take their proposal to insurers to negotiate the best deal. For insurers, the opportunity is to recognize the potential that exists within a megacity and develop products and services that meet needs and lower costs because distribution is more efficient.
The continuous emergence of the megacity could have a significant – potentially threatening – effect on motor insurers. Efficient public transport will become more readily available - especially in Asian capitals in the form of mass rapid transit (MRT) systems. The notion of car sharing may develop further. The combination of improved public transport and a rising share economy could reduce the number of insurable cars and premium pool of motor insurers. Innovative megacities, which usually struggle with congestion, will also be at the forefront of putting automated driving into practice. It can be assumed that human error, the major cause of vehicle accidents, will be reduced, leading to fewer claims for damage and injury.
However, if an accident does occur, the likely scenario is that the manufacturer of the vehicle – or possibly the vehicle’s maintainer – will be liable for compensation. Therefore, public- or products-liability related claims may increase. There could be a time-lag before adequate modeling and pricing can be determined. In the meantime, will insurers simply exclude cover for these vehicles, or will the price of insurance be prohibitive. The challenge needs careful consideration.
Insurance as a concept and as a product developed over many centuries. One lasting principle is risk sharing by many. In the megacity, where the risk landscape is considerably different and constantly evolving, it is time to revisit the sharing concept. Public-private risk-sharing partnerships between the insurance market and the government can be effective in overcoming the impact of natural catastrophes, as shown in the Thailand floods in 2011.The same applies for a pandemic-induced crisis, as well as combatting the threat of traditional terrorism, where government-backed pools and a dependable insurance product aid the current critical situation.