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

A new report from Celent discusses such a scenario and givescarriers some options—none of them pretty—if technology somehowchanges the way we drive cars and the cars we drive—over the next15 years.

Is such a scenario like this pure poppycock? Think back adecade ago and remember all the businesses that thrived beforeInternet technology changed our world. Businesses such as travelagencies, bookstores and even the publishing industry didn'teffectively see what was coming.

The future of the personal auto insurance industry is notaffected as much by the Internet—except for sales—but some of thetechnologies discussed by Celent senior analyst Donald Light iscurrently available and is likely to advance even more in thecoming decade.

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

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

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

Telematics

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

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

The feedback mechanism—with or without penalties orincentives—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 collisionavoidance capabilities built into them, according to Light.

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

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

“There are dashboard warnings, but some of these new cars alsohave adaptive cruise control, which will sense a car in front ofyou, 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 featuresin new cars coming off the assembly line,” says Light. “It's marketdriven. Mercedes thinks it will help them sell more cars. By 2016,the federal government says you can't sell a new car intheU.S.without adoptive cruise control.”

Automated Enforcement

In limited cases, Light believes you will see more automatedenforcement—such as cameras to monitor how traffic is movingthrough traffic lights—on federally funded highways. The issue thatmany state and local governments is facing is whether voters rejectsuch measures on state and local highways as an unnecessary “bigbrother” type intrusion on their rights to privacy.

On the other hand, local and state governments are desperate formoney, 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 trafficcops around,” says Light. “It is financial on one hand vs. adifferent kind of oversight. We tried not to make politicalpredictions, but we made a judgment call that it is plausiblepolitical decisions could go this way.”

Robotic cars

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

“Google has them and you can go to Google search and see videos ofthese 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 bea terrible chore, depending on your commute. Having a robot carcould be like riding the train.”

Strategic Questions

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

1) Should the insurer pursueacquisitions or a merger?

2) Should the insurer put theircompany up for sale?

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

4) Can the insurer maintainefficiency and margins by shifting its cost structure to increasevariable costs and decrease fixed costs?

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

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

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

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

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