Four years ago, Donald Light authored a report for Celent
that speculated on the future of personal auto insurance thanks
to the technological developments around the automobile
industry, such as telematics, accident avoidance technology, and
Light, the director of North America property and casualty practice for Celent, recently updated the report and found
enough evidence that he believes insurers need to begin planning for a future different than what they imagined.
“The amount of premium
insurers charge is driven by the
amount of losses and our feeling in
the model is that roughly by 2030
losses will be down by 22 percent,”
says Light. “We think premium
Any business enterprise that
suffers a 22 percent decline in reve-
nue will have to scramble to replace
that money or go through a painful
shrinking process, points out Light,
who believes it is not too early to
start planning for that world.
Much attention is being paid to driverless cars, but Light
believes of the three factors that will drive changes in personal
auto insurance, this one has the most work remaining.
“Driverless cars will be available for general use, but not
until they demonstrate a significantly better safety record
than human-driven cars,” says Light. Much discussion has
been made about the safety features of such vehicles, but Light
doesn’t believe they are significantly safer than what we have on
the roads today.
Telematics, on the other hand, has the potential for substantial growth over the next five to 10 years in terms of the
percentage of drivers on the road that have devices on their car
or smartphone. Today, the technology is found more in the vehicles, but Light believes the industry will lean toward a hybrid
solution with smartphones plugged into the car.
“There are pluses and minuses from an information quality
viewpoint for both approaches,” he says. “I think smartphone
applications are going to grow as an alternative to the dongle
because I think the car manufacturers are at some point going
to stop giving away telematics information for free to insurance
The New Big Three
Automobile manufacturing was once dominated by the Big Three—GM, Ford and
Chrysler—but for personal auto insurance the new top trio include telematics,
accident avoidance technology, and driverless cars.
companies. Insurers are going to look for good but less expen-
sive data from other sources, which looks to be an app on a
Some of the current apps have the ability to find charac-
teristics of driving patterns for individuals. One worry, points
out Light, is that your teenage son or daughter will go out with
someone who is a much safer driver so the teenager turn on the
smartphone app for the better driver so the better patterns of
speed and braking get picked up.
Not turning on the smartphone can be monitored by GPS,
though, to combat fraud. The question is did the car get from
point A to point B in a car driven by the policyholder or did it
get there in some other way.
“Those are information quality issues that still have to be
addressed, mostly through incentives,” says Light. “The thing
about telematics is it eventually will cause premiums to go up
for bad driving behavior as opposed to only going in one direction: down, which is the current state of affairs.
New cars will increasingly have more accident avoidance
technology. The question, though, is whether the cars will have all
of the available technology. The federal government and American auto manufacturers have an agreement that by 2022 every car
manufactured in the U.S. will have automatic emergency braking.
There are two parts to the question of driverless cars,
according to Light. One is in a given year, once driverless cars
are available for purchase, what percentage of purchases will
be driverless cars. The second question is if you look at all
vehicles on the road, this is true for other technology as well,
what percentage year to year have telematics, a couple of ADAP
technologies, and what percentage are driverless.
There is a five-year interval chart in the report that has
Celent’s predictions of the number of cars with each of those
technologies. The percentage of driverless cars by the year 2030
is small and Light believes it will not grow significantly until
“I like driving especially when I’m the only car on the road.
On the other hand I don’t like driving in the middle of a snowstorm where a four hour trip suddenly takes nine hours,” says
Light. “Maybe I want a car that I can drive in the summer and
another that I can use in the winter. The auto manufacturers
have a big incentive for continuing to sell human-driven cars
because a lot of people find it more satisfying. That will be a
limit, too.” ITA