Car insurance, it might not be the most exciting subject but the reality is that the industry is about to undergo its most significant change since it became a requirement to drive. This is not an exaggeration, technology is set to revolutionize can insurance and the most important question for consumers is what it means for them.
The Sharing Economy
The rise of services such as Uber and Lyft are causing a massive rethink in car ownership. One thing that hasn’t been lost is what this means for insurance – especially as ownership rates are expected to decline.
Given that most car owners use their vehicles less than 5 percent of the time, there is something to be said for not owning a car. Younger generations have already accepted this as fewer are getting drivers licenses.
In fact, this marks a massive shift in American culture as getting a license used to be a sign of freedom. However, younger generations want mobility without the burdens of ownership and this shift marks a threat to the existing insurance business model – one which relies on statutory requirements to drive demand. As such, many insurers are shifting their approach and new products such as micro-insurance and passenger insurance are beginning to appear on the market.
These products offer an alternative to cheap car insurance options which had been marketed since the mid-1990’s. While it is too early to know if alternative auto insurance products will become the norm, there is no doubting that the products represent a reaction to the challenges presented by mobility without ownership of the sharing economy.
10 years ago, everyone was talking about ‘The Aging Society’. However, times have changed and the attitudes of younger drivers are impacting the industry. It’s not just Millennials, as most of this generational cohort has already reached the age of 30. Instead, Digital Natives, or the so-called Generation Z, are driving (pardon the pun) the change in attitude.
For this generation, car ownership is seen as more of a burden than a liberator. This is something that was unthinkable 50 years ago and while it is still early the impact of this change in attitude is reverberating through the car industry.
As mentioned, the sharing economy has risen out of this change in attitude. But another driver is the rise of autonomous vehicles. While they are still in the test state, these self-driving vehicles are poised to redefine transportation.
This change will impact insurance as well. For example, questions of ownership and liability are already being considered by automakers, insurance companies, and automakers alike. At the heart of the matter are the decisions that drivers make every day and, by extension, who should be held liable when those decisions lead to an accident.
While assigning liability is ‘fairly’ straightforward when there is a human driving, it becomes a more complicated question when the car is driving itself – not to mention when that self-driving car isn’t even owned by any of the occupants.
As such, we are probably witnessing the beginning of a 10- to 15-year process where states experiment with changes to the laws governing the auto insurance industry. The outcome of these changes will decide the future of the industry.
Focus on Costs
Having a car used to be considered an important part of the American Dream; however, this is changing and with the new views come to an increased focus on the cost of auto insurance. After all, why should one be forced to pay an exorbitant amount to insure an ‘asset’ they rarely use.
The change is not all bad. In fact, the focus on cost is beginning to drive innovative insurance products. These include discounts for ADAS (Advanced Driver Assistance Systems), trackers and other devices. Not only do these devices allow drivers to get discounts based on their driving behavior, they are also helping insurance companies to better define the risk in their policy portfolios.
For insurers technology is not only a threat, it is an opportunity – mainly one to improve processes and reduce costs. While not all these cost savings are passed on to policyholders, the companies who can more aggressively reduce their overhead while providing a world-class level of customer service tend to come out the winners.
The market for auto insurance is changing more rapidly than it has in years. With these changes come opportunities for consumers to save on their policies. For some, this is by doing away with car ownership altogether, while for others it is the integration of technology to track their driving behavior.
What will come next? It is hard to tell, but the combined rise of self-driving cars and changing demographics point to an industry that will look dramatically different in 10- to 15-years.