Auto Insurance: Trends
A trend for the automotive insurance industry within the United States that is coming from the consumer side is the rise of the gig economy which is challenging the way insurance companies are offering policies for gig economy vehicles. On the industry side, the rise of technology is driving insurance rates, and the insurers are offering usage-based insurance to users. Additionally, companies are offering chatbot support more than in any other industry. From the regulatory side, the industry is experiencing a decrease in global regulatory coordination with each country tailoring their own rules for the insurers in the immediate future.
INSURANCE FOR THE GIG ECONOMY
- According to the Labor Department’s 2018 report, 15 million Americans are working as gig workers.
- KPMG reported on the gig economy being one of the biggest trends for insurance companies for 2019 and onward due to the fact that 35% of the overall workforce currently in one way or the other participate in the gig economy, while that number is projected to rise to 43% by 2020.
- With the rise of the gig-economy, specifically peer-to-peer ride sharing, insurance companies have had to determine how to incorporate these activities into insurance policies.
- Since the activities do not fall solely under commercial or personal, insurance companies have had to determine how provide insurance. Many are offering add-on policies.
- While the traditional insurance companies are still trying to understand how to provide the best services for gig workers, there are many "successful joint ventures and partnerships running between incumbent insurers and insurtechs in the sector that they can often represent the easiest and fastest way for traditional carriers to embrace these micro, scalable, on demand products."
TECHNOLOGY-DRIVEN RISE IN INSURANCE RATES
- The reason why technology has an impact which is considered to be creating a trend within the industry is the fact that today, cars offer multiple features that are similar to smartphones, high-definition televisions and smart home devices. By constantly improving the technology offered within cars, the insurance industry is looking for ways to insure the whole car — including the devices which are primarily technology devices.
- Despite new technology in cars that make them safer, auto insurance rates are going up. With increasingly more complex components, cars are becoming more expensive to repair after a collision. In addition, they are taking more time to repair and require specialized mechanics.
- The best example of rising auto insurance rates is the fact that in 2014, repairing the bumper of an entry-level luxury car cost $1,845, while the same repair cost $3,550 in 2016. This cost difference is almost exclusively due to the parts that are needed for the 2016 model, as the upgraded model comes with a distance sensor in the bumper.
- Moreover, in the last ten years, the technology trend impacted the car industry in such a way that currently, 7% of the global car manufacturers offer seamless connectivity via IoT and built-in safety technology in the cars they sell.
- New players and insurance delivery models are disrupting the auto insurance market. Usage Based Insurance uses telematics-technology to track driver behavior and bill premiums accordingly. UBI variations include Pay-As-You-Drive (PAYD), Pay-How-You-Drive (PHYD), Pay-As-You-Go, and Distance-Based Insurance.
- It is estimated that in 2019 and onward, user-based insurance (UBI) plans will "allow car insurers to track the driving behavior in order to assess the risk and calculate the premium rate accordingly."
- Moreover, usage-based car insurance plans will track driving pattern by utilizing mobile apps and sensors to provide discount to disciplined and safe drivers.
- According to market reports, usage-based Insurance Market will hold a major market share of around 66% by 2024, making it the key driver of the car insurance market.
- Additionally, UBI market segment for commercial vehicles segment is projected to see the fastest growth rate of over 18% from 2018 to 2024 based on the adoption of telematics and further vehicular technologies.
THE RISE OF CHATBOT SUPPORT
- In 2018, the car industry saw chatbot technology getting immensely popular, with industry reports stating the trend is only going to grow in popularity due to chatbot technology taking over multiple industries in the future.
- An example of high utilization of this trend is a Poland-based online car insurance company called Link4 that uses a chatbot called Magdato to help policyholders claim settlement faster by offering them unified support and on-time resolutions backed by chatbots.
- The reason why chatbots are considered to be a trend is the fact that according to the Global Trends Study, insurance companies invest an average of $124 million into chatbots each yer, which is approximately $54 million more than the average across all other industries surveyed.
DECREASE IN GLOBAL COOPERATION FOR REGULATION
- In car insurance, as well as other insurance areas such as health and real estate insurance, the global regulatory approach is expected to dramatically change in 2019 and 2020.
- According to Deloitte, the aftermath of the "financial crisis saw a globally coordinated response to draw up a series of new regulations that would underpin a more robust and stable financial system."
- However, starting in 2018, the countries started to move away from global policy making and are showing "reduced appetite for cross-border regulatory cooperation."
- As a result of this trend displayed by the government agencies across the world, there are "increasing signs of regulatory divergence, including geographical and activity-based ring-fencing, as different regions and countries look to tailor regulations to their own needs."
- Global car insurance companies are going to be challenged with having to comply with divergent rules across the globe. On top of that, the companies will have to find a way to "optimize their local governance structures, operating models, legal entity structure, and booking models."