As automobile technology makes leaps and bounds forward, the number of car accidents and fatalities steadily declines. And with fewer claims being filed, the need for and price of auto insurance begins to decline as well. Over time, insurers may begin to experience a considerable decrease in revenue, which impacts the industry as a whole. This is the scenario proposed by Donald Light, a senior analyst for Celent, a division of Oliver Wyman, a global consulting firm.
Light and thorough Celent research suggests that the steady decline of private and commercial auto insurance premiums (and consequently, industrywide revenue) begins with the introduction and implementation of four distinct technologies: telematics, collision avoidance, automated traffic enforcement, and robot cars. Three of these technologies have already made their way into the market and have begun improving driver safety nationwide.
Telematics is the creation and use of data regarding driver behavior that is stored in onboard devices and made available to coverage providers and other entities. This can include GPS devices, but the primary purpose of this technology has been to retrieve useful information after an accident to determine fault, and to track a motorist’s driving habits for pay-as-you-drive insurance policies. Automated traffic law enforcement, like red light cameras and speeding violation cameras, also helps to encourage safer driving. In conjunction with collision avoidance systems, cars in general are becoming significantly safer.
The final piece of technology in this scenario has only recently been introduced to the world. In 2012, autonomous automobiles—most famously, the Google Driverless Car—have begun making their way into the realm of possibility. Already Nevada is the first state to approve a license for a driverless motor vehicle. Celent suggests that if these technological trends continue at their current rate, accidents may be a thing of the past. With perfectly clean driving records, motorists in the future could easily get cheap car insurance online with minimal effort.
The Possible Decline of Car Insurance Premiums
As these four technologies become commonplace on our nation’s roads, Celent estimates that there will be a sharp decline in accidents and, consequently, insurance premiums for certain kinds of coverages. Liability and physical damage premiums are estimated to drop between 20 and 30 percent from 2013 to 2017, respectively, and between 60 and 80 percent from 2018 to 2022. For many companies, these premiums represent a major source of revenue.
For the auto insurance industry, declining revenue may mean less external investments, industrywide job loss, and the potential decline of political influence (which itself can lead to adverse legislation or regulation). Before motorists begin to panic, however, it’s important to take several things into consideration.
The scenario put forth by Donald Light and Celent is largely hypothetical. While many of these consequences are possible, the actual implementation and enforcement of the four primary technologies is dependent on many different variables.
To have a dramatic impact, state and federal government would have to pursue these technologies aggressively and find a way to financially enforce their implementation. If there is one thing that motorists across the nation can be sure of, it’s that politicians love to argue about money. Additionally, these changes (if they occur) are likely to take time, giving the insurance industry more than enough opportunity to make the necessary adjustments to avoid fiscal disaster.