Technological advances in personal auto insurance distribution and vehicle safety are helping to drive significant transformation of the sector over the coming months and years, Conning said in a new report.
“The personal automobile insurance market is experiencing an expanding set of challenges – including consolidating, evolving distribution structures and product commoditization – that may well redefine the business over time,” Alan Dobbins, a director of Insurance Research at Conning, said in prepared remarks.
Direct Channel Distribution
The Conning report credits carriers that have added or enhanced their direct channel capacity with paying attention to what consumers want.
The shift to more direct channel distribution stems in part from insurers catering to consumer preferences and taking advantage of an opportunity to assume “greater control over the customer interface,” the report notes.
Those moves have become necessary, as competition intensifies because of direct channel distribution and other innovations, according to the report.
“Competitive forces are growing with changing distribution structures (including the emergence of price comparison websites), leading to commoditization of the product and weakening price control,” the Conning report points out. Even with the shift to more direct channel distribution, Conning credits the auto insurance sector with having one of the most diverse distribution options. Beyond direct distribution, there are also agency channels and other alternative approaches, the report notes.
Perhaps the greatest effect direct distribution has brought is consolidation.
“The top 10 writers are increasing their market share, and several of these companies are consistently outperforming the market in profitability as well,” the Conning report says.
Vehicle Safety Technology
The Conning report also sees vehicle safety technology changing the market for auto insurers, with autonomous features and other safety advances mandated by the government helping to reduce accident frequency (though reducing severity has been more of a struggle due to outside factors such as driver behavior).
Technological advances that the Conning report credits with advancing this trend include rear-view video and backup sensors, collision warning systems, automatic emergency breaking, lane departure warnings, and blind spot detection.
Bigger changes are on the way due to auto technology now under development, according to the report.
“Various approaches to driver assistance and driver behavior modification, including eye sensors and drowsiness alerts, also are in early stages – addressing the problem of complacency and cognitive laziness,” the Conning report asserts.
Conning expects these and other technologies will continue to reduce accident frequency in a major way, perhaps as much as 25 percent over the next 20 years. Not to be forgotten, autonomous vehicles and AI-related technology is also being actively tested by companies including GM and Waymo and will likely have their own impact, the report explains.
Even with those advances, however, auto insurance needs won’t necessarily go away, according to the report.
“Just because [accident] frequency improves, the need for insurance does not evaporate at a pace that follows these frequency changes,” the Conning report says. “If we look at the last time the fleet experienced rapid frequency decreases, ultimate loss costs still increased.”
The full Conning report is titled “The Road Ahead for Personal Auto Insurance 2018.”