As the sharing economy, connected cars, and driverless vehicles redefine insurance products, risk assumptions and what companies can offer insurance products, the insurance industry could see up to a $76.6 billion decrease in direct written premium.

That's according to “The Changing Auto Insurance Landscape: Influencers Driving Disruption and Change,” report from Strategy Meets Action, released today. While all these technologies create new opportunities for insurers that embrace these developments, "all four of these together: redefining industry boundaries, customer relationships and loyalty, and long-held business assumptions and models, will be huge," said Denise Garth, SMA Partner.

"Change is here, exposing a new business landscape. And along with it comes the inevitable disruption of auto insurance. How you respond is strategically important for your companies' relevance and competitiveness," she continues.

For example:

  • Auto physical-damage numbers and costs are changing based on these exogenous factors, individually and collectively. The resulting changes in customer behavior and expectations are expected to challenge and change traditional insurance business models, affecting revenue, products, service and customer relationships, and new competitors, such as Google and others, enter insurance markets.
  • Car sharing is another important trend, as there has been a 28-percent decrease in the number of licensed drivers in the 16- to 34-year age bracket; the number of overall vehicle miles traveled also has declined, and 80 percent of vehicles now are driven 50 miles or fewer per day.
  • Auto insurers, such as Metromile (which announced an agreement with ride-sharing giant Uber yesterday), USAA and Erie Insurance are developing new insurance products to cater to ride-share drivers to cover the gap between commercial and personal miles.
  • Connected cars can create a set of value-added experiences that can help decrease risk and create a more multifaceted and engaging customer experience and relationship.
  • Driverless cars and their precursors equipped with advance-collision avoidance technologies are substantially decreasing accident and injury frequency. Nearly 17 percent of insurers now are preparing strategies around these technologies and 45 percent of insurers indicate that the growth and potential of driverless cars will pass the tipping point in five years.

"The operational and profitability models based on historical auto insurance business assumptions are significantly disrupted and will increasingly become irrelevant because of these influencers of change,” Garth said. “These changes will put significant revenue into play, both existing and new. Rather than waiting for automotive, technology, and other industries to determine where this revenue at play will go, insurers must begin to actively plan today."

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