What should we do when changes in the industry – in this case, market changes driven by technology – threaten to destroy a whole section of the insurance community? Do we fight the change, roll with it or wait to see how it pans out? This is a classic trilemma of business strategy. And it's a question that today is being asked about the impact of telematics on the auto insurance business.
Drivers with telematics-linked policies generate fifteen to fifty percent less claims. There are already 2 million such drivers and growth is geometric. If measures like automated traffic management or Google's self-driving car take off, then auto accidents will become increasingly rare and even become extinct. And there goes traditional auto insurance.
There are insurers who are lukewarm about telematics because it's a small market today. However, drivers with telematics-based policies are the profitable customers. The companies which acquire these customers will much better positioned than those who wait to see how telematics develops.
As for ideas like automated traffic management, it's still unclear where the motivation and investment will come from to bring about such a transformed world. This isn't a reason to be complacent, but it does suggest that insurers will have some transition time in which they can plan their exit from traditional auto lines into new products for drivers.
But what will these new products look like? I suggest that auto will evolve from accident cover to mobile contents cover. The less you have to drive, the more you'll use your car as an office or a home extension. You'll have a lot of equipment in there, and possibly copies of important data. All of these assets are at least at risk of theft. Furthermore, I doubt that internal accidents can be eradicated in the way that external ones (theoretically) can. Passengers can still start fires.
We may also see a shift in emphasis from collision cover to policies covering malicious damage. It's not a pleasant thought, but human nature isn't going to become any less destructive; arguably, the less autonomy we have as drivers, the more we may subconsciously look for conflict with other road users.
Auto insurers should be prepared for evolution. They need to track the impact of technology on the market, while trying not to minimize or overstate the short- and long-term opportunities. A difficult balancing act – but nobody said strategy was easy.