By 2040, car accidents are predicted to decrease by 80 per cent. But what will this mean for the future of auto insurance premiums?
With the automotive industry set to evolve at a faster pace than ever (and with digital driving the movement), insurers need to start prepping for change. In a study by Deloitte, it was suggested that total annual premiums would decrease by 30%in the year 2040, while KPMG expects the market to shrink by a whopping 60%.
- A reduction in personal auto insurance
In today’s environment, car sharing is much more commonplace, as is on-demand transportation. Ride-hailing apps such as Uber already seem to dominate the market, and the push for more environmentally-friendly transport sees more and more people opting for shared mobility.
It’s therefore safe to assume that this sharing economy will only become more prevalent for the next generation. Young adults may not have the same need or desire to own their own car as they have done previously, resulting in a reduction in personal auto insurance.
- Autonomous vehicle technology
The one thing predictors across the board can agree on is the rise of autonomous vehicle technology – and the reality might be closer than you think. While fully autonomous, self-driving cars are still a thing of the more distant future, many cars are already utilising some levels of automation, such as cruise control, sensors and automated parking.
As this level of automation steadily increases, premiums for conventional motor insurance are expected to dramatically decrease.
- Reduction in accident frequency
It’s thought that as much as 90% of car accidents are caused by human error. Take away the human element, and you’ve got a much safer situation on the roads. Auto-braking and lane drifting sensors look to be just two of the reasons for a huge reduction in accident frequency.
- A shift in liability
Of course, with human error becoming a thing of the past, any accidents that do occur are likely to be down to the vehicle itself. This means an inevitable shift in liability from drivers to manufacturers. Insuring against software and algorithm defects could quickly become the norm for these manufacturers, opening up a new area for potential revenue.
- Cyber crime risks
The idea of connected cars isn’t that far-fetched; the same way you can now control your central heating system from your phone, you could one day be do the same with your car. But with this comes a risk, as there’s naturally a greater chance of being hacked. Cyber security could be a new direction for insurers to take, with the need for new products and services to protect against cyber theft, hacking and ransomware.
- Average repair costs will increase
The prospect of new and exciting technologies does come with a downside. While the cost of insurance is likely to go down due to improved safety features, the cost of repairs looks set to go up. These more sophisticated technologies are more expensive to repair, and with the added likelihood of having to import certain parts and systems, the overall cost is only going to go up.
- A new driver demographic
Autonomous vehicles could potentially open up a whole new market for auto insurance companies. With safer technology that no longer puts the onus on the driver, an older demographic may be able to retain their mobility for longer.
While we may still be quite a way off a future of flying cars, it seems inevitable that we’ll see significant changes in the industry over the next 25 years. Auto insurers must begin to adapt if they’re to continue to benefit from growth and profitability.