The End Of Automobile Insurance As We Know It

Volvo says it wants “death proof” cars by 2020. Elon Musk says autonomous cars could be safer than human drivers within a few years. Some people even imagine there will come a time when human drivers are banned because computer controlled cars will be so much safer. If any of that is true, what will happen to the auto insurance industry?

According to an article in Forbes, those companies may shrink by 40% or more over the next 25 years. The GEICO gecko could become extinct. Even the effervescent Flo could be out of a job promoting Progressive car insurance. If cars no longer get into accidents and people no longer get killed or injured while driving, the demand for auto insurance will decrease considerably. That’s a good thing if you are a driver, because you will save lots of money not buying insurance. If you are a company that makes its living selling car insurance, though, the news is a little less welcome.

How is the insurance industry preparing for the changes? In June of last year, KPMG did a survey of the auto insurance industry and found that most senior insurance executives believe that any change will happen far in the future, if at all. About a third said they have “done nothing” to prepare for the age of driverless cars. A quarter said they have little or no understanding of self driving cars and only 6% say they have a plan to deal with “the end of auto insurance.”

Donald Light, director of North America property/casualty insurance for Celent, a banking and insurance research firm, predicts that as autonomous driving systems like Tesla’s Autopilot become more common, auto insurers will go out of business if they can’t reduce their overhead. That means getting rid of their massive buildings, armies of agents, and extensive computer systems. He thinks it is unlikely companies will be able to shift from auto coverage to other forms of insurance. “There aren’t other kinds of insurance lying in the street waiting to be written,” Light says.

State Farm, the largest auto insurance company in America, has other ideas. In a recent patent application, it describes a “life management system.” Called the “Aggregation and Correlation of Data for Life Management Purposes” plan, the patent description details how the company could analyze data about a customer’s vehicles, home and personal health, find patterns and offer “personalized recommendations, insurance discounts, and other added values or services that the individual can use to better manage and improve his or her life.”

The program might detect you are not sleeping well at night and correlate that to the temperature in your home being too low. It could alert you to adjust your thermostatm — or do it for you. Your biometric data might indicate a high stress level, possibly due to concerns about burglaries. State Farm would provide you with a list of personal security companies and perhaps offer discount coupons for one or more providers.

Donald Light is skeptical. He asks,“What’s it worth to me to have a personal life manager? It’s not worth $800 a year to me. Maybe it’s worth $100 a year to me. Revenue goes down in a material way. Companies need to accept this reality earlier rather than later.”

But State Farm has more arrows in its digital quiver. By analyzing where and when you drive, it could push targeted adds to the touchscreen in your internet connected vehicle. For instance, coupon for a free pizza might pop up when you are near a Pizza Hut or a discount on power tools when there is a Home Depot ahead.

Does that sound outlandish and a little creepy? Maybe, but there is a reason why a company like China’s LeTV is backing Faraday Future. The touchscreen in future cars will become prime marketing space and companies will fight hard to get a piece of that very valuable digital territory. LeTV, also known as the “NetFlix of China,” is in the business of delivering content to video screens. It and its billionaire owner think there are vast amounts of money to be made by providing in-car content for bored humans who are being driven about by their computer controlled cars.

Every new technology creates winners and losers in the marketplace. The age of traditional car insurance is nearly over, even though most insurance companies don’t know it yet.