Auto Insurance: Slow Death or Successful Adaptation?


Better tech. Lower risk. Fewer collisions. All these great advances just might lead to significantly less premium revenue. What’s an insurer to do? Okay, to be clear, reducing injuries, damages and fatalities is great news, and if autonomous vehicles can do that (as it seems they soon will!), we owe them a big thank you.

Just the same, anything that so dramatically reshapes the landscape of risk raises fundamental industry questions that auto insurers will be wrestling with for years to come. That’s why, in this era of tighter premiums, auto insurers are exploring new business models, according to Mary Diduch at AM Best.

Take stock of today

The Insurance Information Institute counted 2,538 P/C insurers in the United States in 2016. The year before, they wrote $48.3 billion in direct auto premiums, Statista reported. And right now, at least 200 auto insurers have at least 50 percent “of their overall direct premiums coming from their auto insurance business,” Diduch said.

As tech-driven vehicles begin to drive the industry, insurers who obtain most of their revenue from auto lines will need to do some serious rethinking in order to stay afloat.

Know what to expect for tomorrow

“Premiums from the auto insurance lines … won’t completely disappear, but are likely to decline,” Diduch said. That’s because the whole driver/vehicle relationship is in the midst of change. In the future, drivers may not drive, and car-owners may not own. Rather, consumers will ride as passengers in autonomous cars that are “provided by commercial companies … selling transportation by the mile.”

Those cars will still need insurance, of course – but not in the form of the individual policies we know today. Instead, product liability lines will rise to supplant them, offering coverage for self-driving auto manufacturers and software firms, protecting them from liability for product malfunction.

Weigh the options: make your move

Big changes are coming. And that’s an understatement. In the insurance industry at large, almost half (46 percent) of the premiums that exist today – including life insurance – derive from auto and motor insurance, according to IT-Online. If nine out of ten accidents can be eliminated down the road, it’ll wipe away as much as 40 percent of today’s premiums.

Point being? It’s time to plan your next move. To prepare your firm for the future, consider the following five steps.

  1. Rule out complacency. This is not a “wait and see” moment. Rather, it’s time to get informed and do some planning.
  2. Look at your product lines. What are the new opportunities? Where are you most profitable and can you adapt those offerings to address future risks? Should you add new product lines?
  3. Consider diversifying. Explore possible mergers and acquisitions, which could empower you to expand your range of offerings.
  4. Consider reaching further. Can you find the revenue you need by tapping new markets in other geographical regions?
  5. Weigh the option to stand firm. Perhaps providing traditional auto insurance is truly what you do best. Perhaps you’re willing to accept a potential decline in future premium. If your decision is well-informed, own it with confidence.

Since the only guarantee is change, make sure your policy administration system can easily adapt. Not sure? Start shopping for a new policy administration system now. It’s easier with this Ultimate Checklist of 110 Key Capabilities.