Future trends shaping car insurance

The automotive sector is the second-most data-driven industry in the world¹. So it should come as no surprise that digital transformation is having an outsized impact on the way the industry operates – and with it, the way vehicle insurance is sold.

The introduction of new safety features in vehicles, emerging autonomous technologies and changing vehicle ownership behaviours, not to mention new methodologies for determining vehicular risk, mean that insurers are reassessing commonly held assumptions about risk and indemnification.

Vehicle insurance has traditionally been based around a policy transaction. But insurers are steadily shifting from a transactional relationship model to one that offers a broader mobility experience to customers.

A report by insurance sector software provider Majesco called Rethinking Auto Insurance lists the following consumer trends and disruptive technologies as among those having an impact on the vehicle insurance sector²:

• Growing use of non-owned vehicles and a rise in alternative mobility options such as rideshare vehicles and rentals
• Improved driver assistance and safety technology
• Telematics and the rise of connected devices that allow for real-time, data-based underwriting and pricing
• An increase in on-demand insurance
• The accelerating shift towards a future autonomous/self-driving mobility (the result being fewer accidents).

Of these, the rise of telematics technology appears least likely to disrupt the traditional vehicle insurance model.

Telemetry uses a mobile app or device plugged into a car’s diagnostic port to monitor the behaviour of drivers and rewards them for safe driving – or penalises them in the case of risky driving. Fitting telemetry devices to vehicles in exchange for lower insurance premiums sounds great in principle, but it does mean giving insurers access to data – and consumers may not be convinced that the potential savings are worth the privacy trade-offs.

Allianz, for example, says it has no intention of introducing telematics because its customers don’t trust the technology and very few are open to being monitored in any circumstances.

If telemetry isn’t the game-changer it was once heralded to be, what other change is coming down the line?

One evident trend is that vehicle ownership is declining as car-sharing and ride-hailing services continue to gain ground. According to a survey by Cox Automotive, 40 per cent of people think that having transportation is necessary, but owning a vehicle is not³. This jumps to 45 per cent for Millennials.

Safety technology in cars is becoming more effective, putting more emphasis on prevention and less on traditional indemnification. This will potentially cause insurance premiums to decrease due to fewer accidents.

Another trend is the rise of semi-autonomous and autonomous vehicles. Though the availability and adoption of autonomous vehicles is still several years away, we will soon have vehicles that are ‘driven’ by an operating system and dependent on a range of sensors, software and algorithms, and that are designed, built and maintained by third-part entities that will require new forms of liability coverage⁴.

The net effect of the above trends is that car insurers are reimagining the scope of what they offer their customers. New models of mobility will necessitate insurers unbundling all-in-one vehicle policies and providing policies specific to the needs of users. That may well take the form of a unified ‘pay-as-you-use’ mobility policy that covers users for whatever model of transport they choose to use and when they choose to use it.

Insurance providers such as Allianz are keeping abreast of the digital changes taking place by assisting dealerships integrate insurance conversations into emerging channels, such as ‘build your vehicle’, and preparing the insurance sector for the emergence of CASE (connected, autonomous, sharing and eMobile) vehicles.

Many of the trends we’re seeing now present an opportunity for insurers to improve their product offering and engage with their customers in ways that will address their needs. With a uniquely different mobility ecosystem set to come into play, insurers have a chance to shape the car insurance sector of the future.