Motor insurance used to be a pretty standardised product. This will change.

Many discussions have already taken place concerning cars’ technical developments (self-driving cars) or new and different business models (e.g. car-sharing). No doubt, the future of the motor insurance business will look quite different than in the past years. Some even believe that motor liability insurance might be replaced by product liability insurance because of self-driving cars. But what can we really expect in the next 20 years in the EU?

Self-driving cars

Yes, we are testing them, some of the cars offer additional functionalities, the driver though is still needed behind the wheel. Full self-driving cars are not on the streets yet, and if they come, they will probably be mostly used in cities and with low market penetration. Furthermore, self-driving cars come with functionalities that are quite expensive. They may not be affordable for most of the people. We expect to still see ordinary cars on our roads for at least the next 20 years or even longer, especially if we look towards the countryside. The same applies to trucks, busses, tractors and so on. We therefore do not believe that motor liability insurance will be replaced by product liability insurance in the next 20 years – at least not yet.

 Less accidents, yet higher repair costs

Smarter cars can avoid a lot of accidents and thus reduce the likelihood of damages. For example,
a car’s automatic braking system reacts much quicker than any human would. Hence, the accident frequency will be lower the smarter cars become. However, in case of an accident, repair costs are much higher because smart cars are more complex. While there may be less accidents with smart cars repair costs will be higher. Therefore, we do not expect a major decrease in insurance premiums.


Driving behaviour versus anonymity

Another very interesting feature may become a game changer. Knowing how much we drive, how we drive and where we are heading is part of the data that is already stored in smart cars today. But, for the majority of the people this bears a risk because they give up their anonymity, especially if their data is used by the insurance. It might work as long as the insurance premium remains unchanged but sharing data with the insurer as part of a risk assessment might be a problem for most drivers. Considering data protection discussions about the extent to which we willingly share or even give up data, we may want to opt for more anonymity in the future. Not- withstanding that, as cars’ technical functionalities become smarter, some of the data they provide will be used by the motor insurance to assess individual risks. However, in the next 20 years, the majority of motor insurance risks will probably not be calculated on the basis of data provided by driving behaviour.

Sharing economy principles

Car sharing offers new and interesting opportunities and steps up mobility. New things are always
interesting, everyone want to test them. This type of service will attract a specific target group of customers, mostly in bigger cities. The price of the service will be decisive for customers choosing this option. Despite the merits of the service provided, there will still be many people who prefer their own car and who would not want to share it with someone else. During the Covid-19 pandemic, more people also bought a car to simply avoid public transport. While sharing economy principles are on the rise and we recognise the opportunities that come with them, we have not identified a trend that points towards less cars in the near future or fewer cars being purchased.

Regulations and compliance

Regulations are always a consequence of real life. First, there are new opportunities, innovations, and start-ups. In a second step, regulations follow. The BOLT or Uber taxi service platform serves as a prime example. When they launched their services there were no regulations. BOLT and Uber had more freedom to structure their business. Once it became clear that the service they provide is a taxi service, they had
to comply with old and even new regulations. The same will apply to the use of customer’s personal data in insurance, self-driving cars, everyday traffic and so on. In the EU, we are faced with all kinds of regulations. The main question is how to strike a balance between innovation, customer protection and regulations.
As far as cars are concerned, we already see more innovation, new features, and new opportunities on the horizon. However, in terms of motor insurance, we do not expect any major changes in the next 20 years – especially in the case of MTPL (motor third party liability) and MOD (motor own damage) insurance.

New ways of insurance purchase

Customers consider insurance as boring, very difficult to understand, and it certainly is not among the most popular things they purchase. Therefore, the way insurance is sold or used will change. For example, motor insurance will be part of a car purchase or rental. In the case of an accident, the car will be repaired at the dealership or at the agreed repair shop.
Another option for customers will be a subscription-based insurance that goes hand in hand with one’s mobile phone invoice. By treating motor insurance as a commodity, the way it is bought and used will change significantly in the next years.

Fleets make us of driving behaviour measurement

Already, companies operating truck, bus or even tractor fleets use different driving behaviour measurement systems to better understand how the driver operates the vehicle, how much fuel is consumed and so on. Some of the companies even offer their drivers an additional bonus if they save on fuel. Such measurement systems are not yet widely used for insurance purposes. We expect their usage to pick up in future because companies will then be better able to control their insurance costs. All other business models based on sharing economy principles, BOLT or Uber taxi services will probably also use this solution. We therefore expect an increased use of driving behaviour measurement systems linked to the motor insurance of fleet owners and operators in the next years.

Different insurance premiums for smart cars

The smarter cars become, the more safety and convenience functions tare packed into them. Likewise, regulations require minimum standards for cars equipped with safety features, such as the e-call emergency function. Today however, insurers do not yet use such functions in their motor insurance risk assessment procedure. This will change in the future. For example, in cities, most accidents are rear-end collisions. Cars equipped with specific city assistance packages pose a lower risk. We can therefore expect risk assessments based on cars’ safety systems to gain in importance in the next years.

More insurance product developments

More insurance product developments
Motor insurance used to be a pretty standardised product. This will change. First, the MTPL will be addressed, especially when dealing with older cars. Because clients’ needs, are more complex than a standard MTPL cover product development and packaging will have to be stepped up. The same applies to MOD. For example, the cover for a trailer, for bicycles transported on a car roof or
for a roof box with contents usually requires add-on covers. Product developments will therefore pick up in the next years.
As technological progress in the automotive industry and mobility sector has picked up pace, we may soon no longer be driving our cars by ourselves, nor might we own them. While these changes are imminent, no major changes are expected in motor insurance volumes in the next years. MTPL products will also continue to serve their purpose. What will change is the way motor insurance will be sold or purchased. Insurers are therefore challenged to come up with new products.

Igor Fedotov

CEO IIZI Estonia GrECo Baltics

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