Would auto insurance business exist in 20 years from now?

Many experts & visionaries whom I met or whose presentations I’ve seen recently, simultaneously claimed that auto insurance industry stays in front of tremendous changes. “Insurtech”, as they call it, is a very hot topic today. Few reasons for such change can be observed, while the core driver is a massive investment into self-driving vehicles by car manufacturers. As my counterparts claimed, such investment would eventually lead to the level of technological advancement, when any traffic accident risk is impossible. Well, do we believe it can be a real case in the nearest future?

Here is what comes to my mind. Let’s say if I am one of global insurance companies with a massive portfolio of auto clients. Shall I maintain my position, diversify or lead these innovative changes?

Each of the scenarios has its own pros & cons. To answer this question, we need to understand deeply relations between auto OEMs & insurance companies. OEMs make money on manufacturing vehicles. Usually, the more vehicles – the more money. If there are no accidents on roads (so-called “Vision Zero”), the volume of newly produced cars will go down by 20-25 million per annum from the current level. Such decline will be painful for companies with high overcapacity, who need to leverage it to demonstrate superior performance. Don’t get me wrong – there would be new cars coming every year and the rate will be going up, just the volume will be a little bit downgraded.

Insurance business, from another side, is built on risk. These guys lose money with every accident happened. Imagine, what would be an impact on the industry if auto insurance claims will go down by $200 bln per year? This can be an impact for the industry from reaching out “Vision Zero”. Today, according to the research we conducted @Discoperi, top players of auto insurance market are losing money from their products. Such tremendous change will make them extremely profitable. Though later revenues may get adjusted accordingly, still the industry will benefit from the change.

So, here we clearly see a conflict, when car OEMs are working on self-driving cars, while insurance companies requiring reduction of number of accidents still are doing nothing (or close to nothing comparing to automotive industry). Unless insurance companies accelerate their efforts to lower number of accidents today & start thinking on developing new value proposition to self-driving car users, they business would probably go bust. This is life, when dinosaurs become fossils, while man leads the evolution party.

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