The automotive industry is going through a period of change that has massive implications for insurers, says Mariel Devesa, head of product innovation at Farmers Insurance. Changes to personal lines, including substantial declines in auto insurance premiums, could come much more quickly than insurers think if they don’t consider new ways to create value for consumers, she adds.

For example, though last year was a peak year for auto sales, that trend is unlikely to continue, Devesa says. The millennial generation -- defined as those between the ages of 18 and 34 as of 2015 -- is larger than the baby boomers, and their tastes and expectations are decidedly different. Drivers are getting licenses later in life and are embracing ridesharing, an industry that didn’t even exist just a few years ago.

“Uber made 62 million trips in the month of July,” Devesa notes. The service has almost 20 million active users, more than 600,000 drivers, and more than 15 percent of college students are using ridesharing services, she notes, a trend that likely will continue.

Millennials' expectations for connectivity also are changing the auto market. According to an Accenture study, 98 percent of cars will be connected by 2025.

“It used to be that the technology was all used in the higher end cars. But what they found is that for these younger demographics -- who were buying lower-end models -- they want to have full connectivity and the premium they were willing to pay was significantly higher than in the higher priced cars,” Devesa says. “It goes to show the perceived value: It’s not about the car, but what the car can do.”

The Dangers of Partially Autonomous Vehicles

Autonomous cars are in the news, and insurers should expect them arrive in substantial numbers much sooner than they may have previously anticipated, Devesa says. That's especially if ridesharing companies embrace the technology -- Uber is already testing self-driving cars in Pittsburgh.

But until then, partially autonomous vehicles are creating challenges for automakers, insurers and drivers, as evidenced by anincrease in auto fatalities last year in 2015 compared to prior year. Drivers are still getting used to the handoffs between human driversand technology.

“Partial autonomy is the most complicated, not only on the insurance side but on the technological side,” Devesa says. “People have to adapt. First people have to learn about it, then they become overly confident in it,” she says, or even reliant upon it. As an example, she cited her own newfound reliance on rearview cameras to parallel park.

“When I drive a car without a camera, I’m stepping out of the car and looking to see how far I am from the car and the curb,” she says, laughing. “I really want that camera.” But also, as people actively drive less, their reflexes and instincts also are likely to decline. “Those are two big challenges until we cross that inflection point, and it becomes much safer; not only because the user has to do less, but also because the vehicle-to-vehicle networking effects will reduce accidents.”

The other challenge during this transitional period is determining liability. If the car is in auto-pilot mode but alerts the driver to take over and the driver fails to do so, it's unclear who is at fault.

“Is it the personal carrier or the OEM, who said they take responsibility when then the car is on auto pilot?" Devesa asks. "You see a lot of people pushing towards full autonomy because the middle has a lot of challenges.”

In the long term, these trends likely will contribute to the decline in personal auto insurance premiums. However, more immediately, there are opportunities to improve the customer experience, use the data from the car and change the customer experience to eliminate friction points and create additional value.

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