Two trends are most likely to cause disruption in the automotiveinsurance industry.

First, smart mobility and multi-modal transportation; second,advanced driver assistance systems (ADAS) and autonomousdriving.

Both cause the insurance industry to be more aggressive in itsfuture development. Why? There are four reasons.

1. Accidents will decrease, causing a precipitousdecline in claims and premiums 

More than 90 percent of accidents are caused by driver error.In a 2014 study by the Highway Loss Data Institute, ADAS featuresenabled bodily injury liability losses to drop 40 percent andmedical payments to decrease 27 percent. As we move toward moreADAS features, like automatic emergency braking systems on nearlyevery new car within the next six years, and fully autonomousdriving — these positive impacts on driver safety andreduced accidents and claims will continue.

2. Smart mobility creates a need for new forms andmeans of providing insurance

Multi-modality (use of not just cars, but bikes, dynamicshuttles and trains) is creating more consumer choice fortransportation. As more consumers use multiple modes oftransportation, new means of insurance may be required. Car sharingand loan sharing will also create the need for temporary insurancefor the parties involved, and an easy way to deliver these newinsurance services. When you add in the possibility of"purpose-built" vehicles for car/ride-sharing, insurance riskmodeling is only likely to get more difficult. As originalequipment manufacturers (OEMs) look at providing more programs likeAudi's recently announced Audi Shared Fleet,one wonders if we are headed toward a world where we pay for milesdriven. As OEMs provide more fully comprehensive mobility programs,many are counting on loyalty not just to their vehicles— but also to them as the brand for how customers movearound from one destination to another. 

3. Data-driven insurance is becoming a proven win-winfor providers and customers

It's becoming clear that consumers want the benefits of reducedpremiums that come with data-driven/usage-based insurance (up to 30percent). There also are proven benefits for the insurers in termsof more accurate risk pricing models and better claims processing.That could be why companies such as Toyota announce it will provideusage-based insurance going forward. OEMs are partnering withinsurers and other providers to offer these services to theirdrivers as well. As self-driving cars become more likely in themarketplace, insurers are wondering whether the liability willshift from drivers to the vehicles that are making most— if not all — of the safety decisions.

4. Advanced analytics is the key to provide the bestinsurance risk modeling and pricing services

With respect to data-driven insurance, we've seen how thousandsof combinations of data such as location, braking, duration, roadtype, distance traveled, collisions, direction and others canoptimally predict risk as well as provide the best emergencyservices when accidents do occur.

Companies such as Octo Telematics have partnered with SAS, andare developing risk correlation and actuarial capabilities todeliver driving scoring models and pricing algorithms. Through thispartnership, the two companies hope to accelerate the acceptancerate of telematics into the insurance market, by creating andproving business value to insurers and consumers. Insurers willgain better consumer insight, improve CRM, generate more accuratepricing and have a more predictable risk base. Consumers will getindividualized pricing, improved safety and additional value-addedservices, all delivered at a better price.

As the industry moves toward paying for miles driven, advancedanalytics will also be critical in managing the development ofmodels to account for the right balance between OEMs recoveringappropriate fees for use of their vehicles with a price that drivesconsumer adoption of these business models.

Related: Here's what the future of auto insurance will looklike

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Insurers will need to identify data for predictive riskmodels in connected cars. (Photo: iStock)

Three things to consider

1. Who are the insurers of tomorrow? Theinsurance industry will likely look different, and will transformover the next 15 to 25 years as it moves toward more smart mobilityand autonomous driving.
2. What wins out — loyalty to an OEM brand or totraditional automotive insurers? Affinityprograms like we see in other forms of travel (e.g., Delta andAmerican Express) may become more common and will have an impact onthe shape of the industry.
3. With connected vehicles and smart mobility, what datawill best drive new optimal predictive riskmodels? From data-driven insurance to variablepricing models and car-sharing models, we will have more dataavailable to us to drive the best analytics and predictive modelsof the future. The trick will be identifying key drivers andputting this data to work to derive the best services at the rightprice.

Related: BMW teams up with Intel, Mobileye for autonomouscar by 2021

Norm Marks is the automotive lead of the manufacturing andenergy organization within SAS, which includes globalresponsibility for Ford Motor Company and General Motors. He can bereached via LinkedIn.