As Autonomous Vehicles Loom, Insurers Turn to Data For a Lifeline

In recent years, the continuing development of autonomous vehicle technology has grabbed headlines all around the world. Some of today's most well-known companies are all in the fight to be the first to bring true driverless technology to the masses. All the while, however, the global insurance industry is watching those developments with a wary eye.

Right now, the world's largest insurers are working feverishly to figure out how they're going to survive in the age of the driverless car. That innovation carries a cloud of uncertainty with it. For example, nobody quite knows where liability will rest when drivers are no longer part of the equation. Will the automakers need massive new coverage? Will individuals even still have a mandate to stay insured?

Big questions like those are causing the insurance industry to examine how it does business. They hope to diversify before their primary revenue streams come under serious threat from the autonomous vehicle revolution. Here's an overview of the size of the challenge and how the insurance industry is evolving in the face of this massive coming change.

The Death of Auto Insurance, By the Numbers

There are those within the insurance industry that like to soft-pedal just how big of a threat autonomous vehicles pose to the industry. To emphasize how wrong-headed that opinion is, consider this: In the United States, the National Highway Transportation Safety Administration issues periodic reports on the safety of automobile travel in the country. Their data has confirmed that a full 94% of auto crashes involve some type of human error. In addition, the data shows that the majority of those crashes happen in and around urban areas, as this list of the worst drivers by state will readily confirm.

It should come as no surprise, then, to find out that the automobile insurance industry makes the majority of its profits in urban areas. After all, you'll find the greatest concentration of policies wherever you find the most vehicles. With that in mind, imagine what's going to happen to the bottom lines of the auto insurers when autonomous vehicles eliminate 94% of all auto accidents. Then, consider that autonomous vehicles will see the highest early adoption rates in urban areas, where stronger economies allow for a shorter vehicle replacement cycle. It's a recipe for the death of an entire industry.

Efforts to Adapt

In light of the disruption that autonomous vehicles promise to bring to the auto insurance industry, many insurers are exploring new lines of business to keep profits flowing in, come what may. Many have seized on tapping into available data streams to create new lines of business. A prime example of this effort is the Snapshot program that Progressive now offers to its customers.

The idea is simple. Simply agree to let Progressive collect data about your driving habits via a vehicle-attached, cellular-radio enabled dongle, and they'll give you a discount for your good driving habits. For customers, this seems like a gift. For Progressive, however, it's a new way to monetize their existing customers.

Data as an Asset

They're really turning to data collection because it creates myriad new possibilities for revenue. In fact, rival insurer Allstate even spun off en entire business unit dedicated to driving data, called Arity. The company's entire mission revolves around developing predictive analytics solutions that make use of collected driving data. Right now, they sell those solutions to other insurers looking for driver insights – but that's not all. They're also sharing it with the city of Chicago, where they're based, to aid in traffic enforcement and management.

As cars go autonomous, though, Arity and insurers with existing data collection operations aim to alter their tactics. Instead of tracking driving data, they'll instead start to track passenger behavior. For example, they can collect data from in-vehicle entertainment systems, communication devices, and location-tracking systems. All of it can be sold to third-parties looking for ways to reach a captive audience – the millions of people who will no longer be driving, but instead relaxing as their vehicles carry them from place to place.

Driving Into the Future

Given the situation that today's auto insurers face, it's all but certain that they won't look the same way they do today in the very near future. If all of the investments in data collection are any indicator, they'll probably look a whole lot more like data brokers than they do insurance giants. If changes to the laws surrounding vehicle liability shift the responsibility to automakers, though, they can still operate a pared-down version of their core businesses. By adding that to a portfolio that includes robust data collection, sales, and solutions, they'll emerge as strong as ever – forever altered by the autonomous driving revolution – but profitable all the same.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.