Auto insurers to face severe disruption in coming months

CONNECTED cars first made a debut in the market more than two decades ago, with General Motors installing an onboard-device made by Motorola and fitted into the Cadillac line of vehicles way back in 1996.

Since then, automakers and insurance companies have been toying with an idea that could not only change how auto insurance premiums are calculated but also how the insurance industry works.

Unfortunately, despite the theories, the technology needed to bring these new-age insurance models to life was unavailable — or rather, it wasn’t readily available to the public.

Now, with 5G networks boosting connectivity and with the democratization of the internet of things as a result of cheaper, more resilient sensors, we’re closer to smarter auto insurance than ever before.

Understand what’s changing in the auto sector

Cars and drivers aren’t fundamentally changing, well, not unless level 5, fully autonomous driverless vehicles make a debut.

In the meanwhile, cars, with their myriad sensors, have gained the ability to not only help understand the driver and the road and driving conditions but also gather information about the health of the car.

As a result, savvy insurers, with permission from their customers, might tap into data to understand which drivers are safe drivers, map out their routes, and make a better estimate of their likelihood of getting into an accident.

This “tailored” estimate is something that can help lower the premium for experienced drivers who abide by traffic rules — and avoid penalizing them unnecessarily by homogenizing all drivers in a particular market or city.

As a result, auto-insurers will need to make dramatic changes to how they charge customers and price casualties.

And although a new Frost & Sullivan study says that it’s not just the auto industry that’s being shaken up as a result of increased digitization, auto insurers must act fast if they want to keep their customers.

“The auto insurance industry will be one of the most affected by the rising adoption of advanced technologies, as connected and autonomous vehicles will generate real-time data and improve underwriting accuracy,” said Frost & Sullivan Visionary Innovation Principal Consultant Lauren Martin-Taylor.

“In due course, the focus will shift from insuring drivers to insuring the vehicle, systems, and technology,” added Taylor

And Taylor is right, of course — new-age auto insurers such as Root Insurance are already making a debut in developed markets, offering usage-based insurance, adjusting premiums to match the driver’s performance, skills, driving conditions.

Progressive Insurance, another digital-first insurance player operating in the same markets as Root Insurance offers discounts to customers for driving safely.

Both companies track user performance via an app. And although nobody is betting that they’ve got the perfect model, each of those companies, and their peers in similar markets, are working on building the next-generation auto insurance model that not only offers more affordable premiums but also improves the customer experience.

In coming months, if traditional insurers fail to make the changes their customers and clients demand, new-age insurers will win hearts and customers quickly.

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