The auto insurance industry is fighting back with new innovations of its own.
From self-driving cars to data collection, emerging technologies are radically transforming the auto insurance industry. Confronted with changing consumer needs, insurers are adjusting traditional models by developing new products and underwriting practices that better meet the demands of today’s drivers.
Established auto insurers face fresh competition from nontraditional rivals such as Amazon, Walmart, and Google, all of which are rapidly expanding their insurance programs. Similarly, insurtech startups like Metromile and Cuvva are offering consumers flexible coverage by the mile or the hour. Even manufacturers of self-driving cars like Mercedes and Volvo are reportedly willing to self-insure their vehicles.
Despite this sudden competition, traditional auto insurers will still have a role in the market, even if car companies opt to self-insure their products. Insurers can partner with autonomous car manufacturers, for example. As California Polytechnic State University Professor of Philosophy and Emerging Technologies Patrick Lin writes in Forbes, “We need independent insurers to be engaged as a neutral arbiter of risk, letting technology developers focus on what they do best.”
Instead of underwriting auto policies based on personal information such as age, profession, and income, auto insurers will underwrite the vehicle’s performance systems and cloud-connected devices. This includes not only the networks that pilot the self-driving cars of the near future, but long-established technologies such as blind-spot sensors and cruise control, as well. As a result, auto insurers will increasingly write product liability or cyber insurance policies for manufacturers, since the manufacturer would be liable for any damage caused by a hacking or mechanical failure.
The rise of rideshare services like Uber and Lyft will likely reduce the need for personal auto insurance, if not car ownership. As drivers use their personal cars for commercial purposes or rideshare companies expand their fleets, the demand for commercial auto insurance will increase, creating new opportunities for insurers. Geico, for example, has already launched ridesharing and on-demand coverage in 36 states and the District of Columbia.
Cloud-connected devices embedded in vehicles collect extensive data regarding driving habits, road conditions, and even the driver’s condition. Insurers can rely on this information to underwrite policies based strictly on the driver’s tendencies and driving patterns to craft usage based insurance policies. Having this data could also enable insurers to underwrite “micro” risks, allowing them to raise or lower rates depending on the time of day, location, or the driver’s health.
Last year, the National Highway Traffic Safety Administration released a set of regulations regarding autonomous vehicles. Meanwhile, lawmakers in 33 states and the District of Columbia have drafted legislation designed to protect drivers and roadways while also promoting the development of self-driving vehicles. As these new laws are passed, insurers must redraw policies, products, and underwriting standards to conform to a revised regulatory framework.
Technological innovations will continue to disrupt the auto insurance industry. Fortunately, insurers have the tools, experience, and knowledge to succeed on the road ahead.