2018: The Road Ahead for Personal Auto Insurance
Private passenger auto is the property-casualty industry’s dominant line of business, but is experiencing an expanding set of challenges that could redefine the line of business over time. This Strategic Study summarizes the current environment facing personal auto insurers, examines the pressures on the market from emerging auto technologies and changing transportation preferences, and provides a look forward at the impact of these key market-shaping forces. The study concludes with an assessment of possible paths for auto insurers with a stake in this market.
2. Executive Summary
3. Current State of Personal Auto
- Importance of Private Passenger Auto to the Industry
- Recent Strong Growth Is Slowing
- Profit Struggles
- Business Is Consolidating
- Distribution Favoring Direct and Multichannel Options
- Business Value Proposition Is Changing—Collision Becoming Even More Important
4. Pressure on the Auto Insurance Market from Changing Automobile Technology
- Historical Trends in U.S. Automobile Exposures and Crashes
- Advances in Vehicle Safety Technology and Road Safety
- The Current Generation of Safety Technology and Implications Over the Next Decade
- The Next Generation in Vehicle Safety—Changing the Fleet and the Environment
- Caveats to the Vehicle Safety Discussion
5. Changing the Universe of Drivers and Automobile Use
- Sharing (Ridesharing and Car-Sharing)
- Autonomous Vehicles
- Combination of Ridesharing and Autonomous
6. Possible Paths for Auto Insurance and Broader Implications
- Intense Focus on Cost Reduction in a Commoditized Environment
- Identify High-Growth Niches with Specialty Needs
- Auto Migrating to Multiline or Multiproduct
The personal auto insurance line faces challenging market conditions. It has been consolidating, with an increasing market share owned by the top ten and top 25 writers. It has had profitability challenges, with rate and loss cost challenges. Loss frequency has shown a steady, albeit occasionally bumpy, decrease over recent years and decades, but that decreasing trend has plateaued recently. Loss severity, in contrast, has shown a steady increase that has accelerated in recent years. Auto insurers have been able to navigate these changes based on some sporadic periods of pricing power, interspaced with periods of frequency improvements, but increasing competitive pressures and increased volatility in frequency have challenged overall profitability.
In the medium term and longer term, the line will be challenged further. The ecosystem of the automobile marketplace is undergoing significant change in use of technology and buying habits, and perhaps in the use of automobiles in general. Auto manufacturers and the public sector have combined with technology and legislation to improve highway safety significantly, although the emphasis has been more on reducing fatalities and injuries than on property damage losses. In fact, property damage severity may be facing higher costs purely because of the cost of crash-avoidance technology. The insurance competitive environment is exploding with new applications for technology, affecting marketing/distribution, data analysis, and cost management. The consumer environment for automobile insurance, and personal lines in general, is going through changes spurred by communication technology, communication, and buying habits. The future strategies for success may look very different.
Or perhaps not. Many of the strategies that may be required to navigate the changes unfolding may have their roots in the near and even distant past, but may be subject to some new application and new thinking made possible by new possibilities of technology and new recognition of consumer demand and buying habits.
This Strategic Study summarizes the current environment facing personal auto insurers, examines the pressures on the market from emerging auto technologies and changing transportation preferences, along with a look forward at the impact of these key market-shaping forces. The study concludes with an assessment of possible paths for auto insurers with a stake in this market.