What Does the Future of Auto Insurance Look Like?

October 19, 2018
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I recently attended the annual conference of a trade group that we belong to. The keynote speaker discussed how auto insurance will be changing in the near future based on where insurance companies are spending their research and development dollars. I'm not talking about insuring flying cars but who would have thought that driverless cars would become a reality in our lifetimes?

Temporary Insurance Coverage

Companies are discussing the possibility that certain coverage can be added to an insurance policy and just as easily removed from the policy based on usage. The example given was adding and removing coverage for camera equipment based on when the equipment was being used. The policyholder would call the insurance agent, insurance company, or simply go online to add coverage on their homeowner's policy when they were going to use the equipment. Then when finished using the camera equipment, they would remove the coverage in the same manner. Of course, this type of system would be limited to certain coverages and certain types of items.

I see a couple of problems with this. First of all, what happens if the consumer forgets to notify the insurance agent or company? "Oops, I'm sorry. I really meant to call you but forgot". Second, what would stop the policyholder to only contact the agent or company after something happened to the camera equipment?

Tailoring Homeowners Coverage

Let's face it. Homeowners insurance hasn't really changed much in decades. Sure, there have been some glitzy endorsements that companies have come up with and some companies are willing to offer a few more package options in which the policyholder can choose among but honestly, the homeowner's policy form has remained consistent for years.

Homes today are set up much differently than the colorful box type homes of the 1960's. Homes back then didn't have Alexa, security systems (other than dad's shotgun), nanny cams, video surveillance, or the ability for the homeowner to control devices remotely such as lights, locks, or appliances. Insurance companies are figuring out that these items are becoming the norm and that their policyholders expect these things to be covered without having to pay much more to do so. They also see that homes are becoming more like cars with all of the features that can be added. Each house is now unique from other houses based on what the homeowner desires and can afford. Homeowners Insurance companies must be flexible to stay relevant in the market moving forward.

Usage Based Insurance Will Expand

This one is a real hot button to a lot of drivers. Today, more and more auto insurance companies are offering discounts if consumers allow them to access prior odometer readings through 3rd party vendors.

Why is annual mileage such a big deal? Since Proposition 103 was passed back in 1988, auto insurance companies conducting business in California are forced to use three main factors in determining the premium being charged to a consumer; a person's driving record, how long the person has been licensed to drive, and annual mileage. The thinking is that the more somebody drives, the bigger the chance that they will ultimately be involved in an accident. Some companies are bypassing all of this be setting annual mileage automatically at 13,000 to 14,000 which is the average annual mileage people living in this state drive.

Get ready for your head to explode. How would you like it if insurance companies measured how fast your car accelerated, how much you stomp on your brakes, or how hard you turn your car when turning? Technology would enable each car to have a sort of "black box" to measure all types of metrics which the companies would use to determine how risky you are as a driver and charge premium based on this.

I like technology as much as the next guy but I scratch my head at some of the ways it will be used.

--Ken May