First there was UBI, promising to drop auto insurance premiums by 10-15 percent.
Then came driverless cars to drop them again, this time by as much as 40 percent.
UBI has been around for some years now; driverless cars, not so much. They’re only now poised on the verge of the market. Yet both innovations represent a blow to insurance premiums, and here in that fleeting moment between the old one-two, it’s fair to wonder how the industry is going to respond.
Driverless cars about to make premiums cheaper
According to a new Ptolemus study, we’ll be seeing 380 million vehicles that are semi- to fully-autonomous on the road by 2030. “This might sound optimistic, but in fact all the signs are showing a rapid progression of ADAS features in the vehicle, and regulations will accelerate that trend further,” said Thomas Hallauer at Ptolemus.
Autonomy is good for PR, and the news isn’t just coming from the luxury brands. Mid-market manufacturers including Nissan, Ford and GM are jumping into the current as well.
All this autonomy is slated to bring the crash rate down. Thanks to advanced driver assistance systems (ADAS), accidents could be reduced by over 30 percent. Frontal collision avoidance could reduce losses by 50 percent.
This, in turn, will bear an impact on the cost of insurance. From 2023 on, we can expect premiums to take a steep dive. By 2030, they may cost up to 40 percent less.
What does this mean for the auto insurance business model?
Cars are getting smarter; auto insurance must follow suit.
“Insurers without telematics and UBI offerings will succumb to the pressure of a smarter world,” said Joao Lima at Computer Business Review. Those who continue to rely on a conventional business model are likely to bear the brunt of negative customer selection and “growing imbalances” in their portfolio.
Perhaps, at the moment, this seems all very theoretical. Perhaps the advent of driverless cars feels like a far-off reality. Perhaps, at the moment, it still is.
Yet in this case, “far off” does not mean “uncertain.” Driverless cars are making their debut now. Their emergence is sure. “According to [Ptolemus], the emergence of autonomous vehicles is irreversible, as several advancements have been done in the space over the last few months,” Lima said.
Insurance telematics, too, is gaining momentum. By 2020, there will be almost 100 million vehicles around the world insured under telematics policies. By 2030, nearly half of the world’s vehicles will have telematics coverage.
This is not bad news. It is, however, a change. The insurer’s business model will necessarily adjust, as insurers evolve into their new role: “from cure to care,” as Lima put it. “Protection will become the goal as insurers seek to avoid accidents altogether through tariff incentives, driver feedback and ADAS functions.”
Time is of the essence. Now is the time to think carefully about the opportunities you’ll pursue in the driverless, crash-free, usage-based world.
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