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The End of Auto Insurance?


Will auto insurance disappear?

That’s a  “provocative but plausible” scenario according to a recent Celent report, “A Scenario: The End of Auto Insurance. What Happens When There Are Almost No Accidents.”

Technologies  such as telematics, collision avoidance, automated traffic law enforcement, and robot cars have the potential to radically reduce accident rates. The convergence of these technologies has the potential to eliminate them altogether.

While automobile fatalities have been falling since increased safety regulations were instituted in the 1970s, over 30,000 people died in accidents in 2012. About ten times as many people die in automobile accidents every year in the U.S. than died in the 9/11 attacks and yet there is little outrage about it. This may change.

Despite dropping fatalities, the cost of insuring vehicles has risen relative to other consumer costs and rapidly. The rise is not explained by rising cost of auto body work and seems difficult to understand given the lower costs of delivering auto insurance via the web as is now popular.

It seems these two trends are in conflict and will lead to an inevitable collapse of insurance rates. Vehicles will become an order of magnitude safer in the near term and fatalities in the U.S. could drop below 5,000 per annum. This will be big news.

And once that happens the automobile insurance industry as it exist today will become entirely unsustainable. Declining revenues will force insurers to reduce accident and theft rates for their insured parties just to survive. They will accomplish this in part by encouraging and rewarding customer’s use of safety technologies. Insurers are already offering discounts for cars with anti-theft systems such as GPS tracking devices. This trend will accelerate as accident avoidance technologies mature and become available in newer vehicles.

In a world with almost no car accidents, car insurance will essentially disappear. Technology has the potential to reduce both the severity of accidents and their frequency and has already nearly cut fatality rates in half. We can expect an even more radical reduction in fatality rates going forward and this reduction will be accelerated by offered insurer discounts. As a result the automobile insurance industry as we know it today could disappear almost entirely and it could happen within a decade.

Think it’s impossible? Consider the trade of the wheelwright as an example of what happens when a radical technology change rapidly obsoletes an old way of doing things.