Telematics-fitted cars, cars with cruise control and emergency automatic braking, driverless cars and what not… the era of continuous innovation in this industry keeps on permeating our day-to-day life. While the underlying theme is reducing the number of accidents and promoting comfortable/safe driving, car manufacturers keep adding “features” that will transfer operational control of the vehicle significantly from the driver to automated systems. The car industry doesn’t preclude a futuristic scenario (though not necessarily in the near future) when we will be travelling in Uber & Lyft without drivers!
Anyone who is associated with insurance will find it very interesting to look at how these innovations might affect car insurers. In today’s world, where the car insurance line of business is already stung by shrinking margins (due to competitive pricing on one hand and increasing claims payments on the other), these auto innovations are, in the opinion of many insurers, bound to further reduce written premiums. As we leverage automation to reduce human driving errors, customers are also going to expect car insurance premiums to go down and shop around for the cheapest insurance premium rates, further triggering price wars.
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However, innovations are going to affect the car insurance industry in various ways – which might force insurers to think of newer business models (products, services, partnerships, etc.). Four key areas within the value chain that have the potential to alter the future game plan for auto insurance are:
- In case of an accident (though expected to be highly improbable) who will assume the liability? Will it be the owner/driver of the car or its manufacturer or the equipment or software manufacturer? How is the claims management ecosystem expected to evolve? Will we need specialized adjusters to handle claims involving damages to the supporting equipment?
- Rating and underwriting for car insurance will focus more on the security and safe functioning of the vehicle along with its set of software and hardware that enable the driverless capabilities — such as onboard software, cameras, radar, altimeters etc. — instead of the human driver. Though the frequency of accidents will come down rapidly, the loss expenses per accident is bound to go up due to enhanced cost of the supporting equipment.
- There will be new coverage developments relating to third-party collision damage due to high cost of equipment as well as the cyber risk to software that governs the driving functions of the next-generation cars.
- There will be opportunities around data analytics to harness the huge amount of data made available for better risk analysis and rating, loss development, location analysis, etc.
Do auto insurers need to fear that the next-generation cars will sound the death knell for their business? Or will they see newer opportunities to engage with their customers and enhance their market share?
We are all set to witness lot of action in this space in the coming years as new-era cars continue to evolve and auto insurers attempt to match these developments with newer strategies around products, distribution and policy services!