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White Paper

Auto Insurance – Driving into the Sunset?


The automobile industry is at the cusp of revolutionary change, as car sharing programs, remote-controlled vehicles and driverless cars threaten to completely alter not just driver behavior but the entire urban landscape as we now know it. The long-term existence of the auto insurance industry is being questioned; however, we present an alternative view. We feel that the industry will be transformed. Insurers who have the technological wherewithal to be able to develop innovative new products, create alternative distribution approaches, and tap new customer segments will not just survive but even thrive.

The new developments in driver behavior and in the auto industry have several broad implications for the auto insurance industry. The industry earns an annual income of nearly $200 billion from personal and commercial auto insurance premiums; this could reduce by 75% or more, according to some industry analysts. Yet another reputed global consulting and research firm states that the auto insurance portion of total P&C premium over the next decade could potentially drop from 39 percent to just 13%.

The TCS View
While these changes in technology adoption in the automobile industry will have a significant impact on the auto insurance industry, in the midst of these fairly alarmist views, we believe that auto insurance will continue to stay relevant. The key to sustaining business will be the auto insurers ability to stay relevant to the market, and identify and address the new opportunities arising out of this changing auto landscape.

  • As long as some cars are manually driven, the need for auto insurance will continue. In fact the insurance liability for manually driven cars may go up because a manual driver will find it challenging to drive alongside a group of driverless cars.
  • In the case of car sharing, and risk slicing (due to automotive time sharing), associating drivers to vehicles and their driving time-periods will get more complicated, especially when users want policies that cover them for certain numbers of miles, or for certain periods of time.
  • Simplified auto insurance models will be developed that are appropriate for part ownership or periodic usage.
  • As driverless cars become popular, more senior citizens, disabled people and even children will start using cars. This will increase the number of car users on the road and will, in turn, increase the number of insurance policies required.
  • With improved safety features, the reduction in auto insurance premiums, if done with the right analytics and actuarial modeling, will be compensated by a reduction in insurance claims, thereby allowing the industry to still maintain profitability.

Auto insurance companies should analyze how their businesses will transform to accommodate these new technologies and car ownership/usage models, so that they are better equipped to compete effectively in the new landscape. 

In this white paper, we highlight how insurance companies must be able to change their systems and processes to develop and to accurately price new products and insurance packages. This will require agility in responding to the opportunities and insurers will need to evaluate their readiness to create and service new and relevant insurance products across all channels and proactively transform their new business and policy administration platforms.

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