Can you imagine a world where there are no traffic accidents? What would such a world mean to the hundreds of personal lines insurance carriers that offer personal auto coverage?

A new report from Celent discusses such a scenario and gives carriers some options—none of them pretty—if technology somehow changes the way we drive cars and the cars we drive—over the next 15 years.

Is such a scenario like this pure poppycock? Think back a decade ago and remember all the businesses that thrived before Internet technology changed our world. Businesses such as travel agencies, bookstores and even the publishing industry didn't effectively see what was coming.

The future of the personal auto insurance industry is not affected as much by the Internet—except for sales—but some of the technologies discussed by Celent senior analyst Donald Light is currently available and is likely to advance even more in the coming decade.

“First off, the report is a scenario, not a prediction,” says Light. “But it's a scenario we feel is quite plausible given the availability of current technology, so some of it comes down to political decisions. It's provocative, but plausible.”

Light explains the four technologies that could change the way insurers do business are: telematics, collision avoidance, automated enforcement, and robot cars.

“The scenario is plausible because most of the technologies on which it depends are already available, and to some extent already in use,” he says.

Telematics

Telematics technology is available, but Light believes the information will have to be repurposed.

“Today [telematics] is backward looking,” says Light. “If there was an accident how does the black box read out—how fast was the car going, how hard was the braking, when did the airbags deploy? This is good information for adjusting the claim, but maybe adding a GPS feature can provide feedback to the driver or the parent of a teenage driver or suggestions on how and where you drive.”

The feedback mechanism—with or without penalties or incentives—can produce safer driving habits, according to Light, which is the repurposing Celent sees with telematics.

Collision avoidance

New automobiles—particularly high-end vehicles—have collision avoidance capabilities built into them, according to Light.

“[The technology] is moving down to less expensive makes and models,” he says.

Collission-avoidance technology has the ability to scan the environment around the car for things such as: Are you approaching cars in front of you at too high a rate of speed” Are you drifting out of your lane? Is there a car in your blind spot?

“There are dashboard warnings, but some of these new cars also have adaptive cruise control, which will sense a car in front of you, its rate of speed, and will slow your car down.”

These factors go a long way in reducing the number of accidents, according to Light.

“What the scenario calls for is mandating many of these features in new cars coming off the assembly line,” says Light. “It's market driven. Mercedes thinks it will help them sell more cars. By 2016, the federal government says you can't sell a new car in theU.S.without adoptive cruise control.”

Automated Enforcement

In limited cases, Light believes you will see more automated enforcement—such as cameras to monitor how traffic is moving through traffic lights—on federally funded highways. The issue that many state and local governments is facing is whether voters reject such measures on state and local highways as an unnecessary “big brother” type intrusion on their rights to privacy.

On the other hand, local and state governments are desperate for money, points out Light, and the traffic cameras can provide a big revenue increase for local governments.

“You can save on personnel costs—you won't need as many traffic cops around,” says Light. “It is financial on one hand vs. a different kind of oversight. We tried not to make political predictions, but we made a judgment call that it is plausible political decisions could go this way.”

Robotic cars

Celent doesn't believe so-called robot cars will become mandated in a 15-year horizon, but Light points out such cars do exist today.

“Google has them and you can go to Google search and see videos of these prototypes,” he says.

There are questions about consumer acceptance of such cars, according to Light.

“A lot of people enjoy driving, but on the other hand it can be a terrible chore, depending on your commute. Having a robot car could be like riding the train.”

Strategic Questions

If the scenario progresses , Celent believes personal auto insurers will need to face five strategic questions.

1) Should the insurer pursue acquisitions or a merger?

2) Should the insurer put their company up for sale?

3) Should it work to grow its non-auto lines of business?

4) Can the insurer maintain efficiency and margins by shifting its cost structure to increase variable costs and decrease fixed costs?

5) Should it simply do nothing and accept a status as a smaller company?

“These are gut-wrenching questions and Celent's suggestion is here's the scenario and if something close to this happens, insurance companies will have to deal with it somewhere in mid- to long-term planning,” says Light. “On the other hand, if you think the scenario is poppycock or if you track the scenario year-by-year and we are not any closer in, say, the year 2016, just keep the report somewhere on your hard drive.”

Light doesn't believe carriers need to “start burning up calories to deal with these existential, corporate-enterprise, strategic questions, but there are a lot of big companies that are heavily dependent on auto insurance and if there is an existential threat, it's probably worth at least recognizing it is there so companies can analyze it and start assigning probabilities and tracking it over time.”

If companies see the scenario Celent lays out is actually unfolding, carriers need to turn to the five questions.

“It could create quite a rearrangement of the industry,” says Light.

Special Reports /

A World Without Personal Auto Insurance?

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