In-ClassReviewofDraft1

In-ClassReviewofDraft1 - MEMORANDUM To:MichaelTipsord,CEO...

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MEMORANDUM To: Michael Tipsord, CEO From: Alex Zhang, Corporate Strategist Date: September 14, 2016 Subject: Self­Driving Cars Are Coming and We Should Insure Them Intro No longer a question of if but when, self­driving cars are going to disrupt entire industries far beyond the automobile sector. In fact, self­driving cars will have the capabilities to change the way our entire lives are organized, starting with how we commute, where we commute, and what we are now able to do during our commute. The industries it affects, trucking, oil consumption, public transportation, will all be that can transformed by cheap cost and accessibility accomplished from automation. As an insurance company, should we be worried? The imminent adoption of autonomous vehicles will drastically affect auto­insurance companies by shifting the blame from traditional human error to vehicle manufacturer liability presenting exciting opportunities for new forms of liability coverage. By developing policies geared toward self­driving vehicles, State Farm can start targeting potential new customers, attracting manufacturer clients before competitors enter this space, and continue ensuring dominant market share in the auto­insurance industry. Overview of Auto­Insurance Industry It’s a dog­eat­dog world within the auto­insurance industry, and as insurance companies continue to face major consolidation, only the most innovative survive. Currently, the industry is dominated by four key players — Allstate Insurance Company, Berkshire Hathaway Inc., Progressive Corp., and State Farm Insurance Companies — that account for an estimated 63% of total industry revenue in 2016. (IBIS) Unless we continue to retain a strong competitive advantage by providing unique product offerings, we face the potential of long­term acquisition through ruthless consolidation. Our success as an industry is defined by two main external drivers: number of motor vehicle registrations and vehicle accidents. In the US, vehicle insurance is required in forty­eight of the fifty states meaning the increase of new automobile sales guarantees opportunity for auto­insurance companies. As for collisions, vehicle accidents are significantly decreasing due to both vehicle and road safety improvements, particularly the introduction of anti lock brakes and electronic speed control. This is beneficial to insurance companies because when collision rates increase, more insurance claims are submitted, which directly hurt our profit margins.(IBIS) A majority of State Farm’s revenue is generated from selling auto­insurance packages to insure vehicle damages up to a certain threshold. I’ve provided brief definitions below to some of our policies most relevant to the self­driving car trend in order to provide context for later analysis. Thus, auto­insurance companies support three different circumstances of liability: traditional negligence , no­fault liability , and strict liability .
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