The automated future of auto insurance

When thinking about motor insurance, many people think of it as an unpleasant experience that involves long call times, excessive questions, and lengthy paperwork through a cumbersome and time-consuming process that very often leads to confusion about what is (or isn’t) covered in the policy.

InsurTech advancements such as artificial intelligence (AI), machine learning (ML) and deep learning (DL) are changing that perception and improving the overall user experience, thanks to the rise of new and more flexible models such as usage-based insurance (UBI).

UBI is more convenient than traditional insurance models, as it provides flexible and temporary cover for the time drivers actually want – just a few quick and simple steps from a mobile device resulting in fully comprehensive cover being issued in under two minutes. Plus, there are no lengthy and invasive phone calls, no long-term commitments based on uncertain vehicle usage, and no auto-renewals.

These are significant advancements that have been accelerated over the past year, but that would also have been unheard of just a few years ago. So, this raises another important question – where are we headed in the next 10 years and what are the potential outcomes that seem to be a futuristic fantasy now but have every chance of becoming a reality in the not too distant future?

Insurance 2030 – where current niche becomes the norm?

A recent McKinsey report [1] indicated that insurance will shift from its current state of ‘detect and repair’ to ‘predict and prevent’, transforming every aspect of the industry in the process. It predicts that the pace of change will also accelerate as brokers, consumers, financial intermediaries, insurers, and suppliers become more adept at using advanced technologies to enhance decision making and productivity, lower costs, and optimise the customer experience.

The report notes that, because products are tailored to the behaviour of individual consumers, UBI products such as temporary car insurance are expected to proliferate as insurance transitions from a ‘purchase and annual renewal’ model to a continuous cycle, because product offerings will constantly adapt to the behavioural patterns of an individual.

It predicts that there will be increased focus on sophisticated proprietary platforms that connect customers and insurers and offer customers differentiated experiences, features, and value. Where this change is embraced, the pace of pricing innovation is rapid. As pricing becomes available in real time based on usage and a dynamic, data-rich assessment of risk, consumers become more empowered to make decisions about how their actions influence coverage, insurability, and pricing.

The key to future success lies in collaboration

For many InsurTechs, UBI policy sales and revenues have steadily risen throughout the lockdown, as some of the larger and more traditional insurers have struggled with legacy systems that are unable to swiftly adapt to rapidly changing market conditions driven by a seismic shift in consumer trends. This is evidence that the market is warming to UBI in uncertain economic times.

UBI is by no means the future mainstream replacement to the traditional annual policy model. It should rather be viewed as more of a complementary, flexible add-on to an annual policy. And with this in mind, brokers and insurers should aim to work more collaboratively to offer motorists the most flexible and fit-for-purpose solution at a fair and affordable price in a time where rapid market changes means that brand loyalty is no longer a guarantee.

If we’ve learnt anything from the past year, it’s that anything is possible. These latest industry insights reflect the rapid change that the insurance sector is undergoing and are perhaps even conservative in terms of timings given all that has happened since lockdown.