For decades, population growth and rising per capita income in Europe have been accompanied by an increase in the number of vehicles purchased and kilometers driven. But mobility is at a turning point. The fight against climate change has disrupted all mobility-related industries, including the insurance market. And as customers become more aware of new technologies, such as autonomous driving and connectivity, the auto industry and auto insurers will need to change their product offerings and ways of working. These changes pose challenges to the insurance industry, but they also offer new opportunities.
The reversal of traffic
In 2021, European policy makers have significantly stepped up their efforts to reduce transport emissions. Under Europe’s Green Deal, companies have pledged to more than halve passenger car CO2 emissions by 2030, compared to 1990 levels, according to the European Commission. More than 150 European cities have already introduced access restrictions, such as reducing the use of private vehicles in designated areas, and uptake of electric vehicles is expected to reach nearly 50% globally over the next next decade.
New technologies will also help to smooth traffic. The first level 3 traffic congestion pilots, for example, can monitor traffic jams and temporarily switch the vehicle to autonomous driving. Level 4 highway drivers, who can monitor traffic and drive autonomously at higher speeds, are expected to be licensed for private vehicles by 2025 at the latest. By then, 70% of all new vehicles should be connected “smart” cars. Additionally, self-driving taxis are already operating on the roads of cities such as Phoenix, San Francisco and Seoul. In China, they are expected to account for around two-thirds of all passenger-kilometres by 2040. Europe is also expected to introduce these types of vehicles to its streets in just a few years.
Individual mobility still means first and foremost owning a car. But the consumer market has become more open to new mobility solutions. Travel booked electronically, known as e-hailing, tripled between 2016 and 2021, and the micromobility sector (small electric vehicles, public transport and shared services) grew by 60% in 2021 alone. as these trends continue, more people will shift from owning a car to using other transportation options.
How insurance will be affected
As the mobility industry evolves, so does the insurance market. For example, the frequency of claims is likely to decrease significantly in the years to come. At the same time, when accidents do occur, claims will be higher due to the high cost of replacing components, such as sensors in vehicle bodies or batteries in electric vehicles. More dramatically, private cars will become less popular as fleet businesses and micromobility expand, significantly shrinking the most important business segment for most car insurers.
Insurance companies will need to develop new approaches to deal with the impending decline in car insurance premiums and compensate for this loss with new business models. Auto insurers will also have to get used to a different portfolio of risks if liability shifts from driver to manufacturer, an approach some political leaders are discussing. To adapt, insurers will need to develop new skills in product development and in actuarial, sales and customer care services.
Overall, the insurance industry needs to prepare for significant shifts in business priorities, the sooner the better.
Where to start
Fortunately, such a change offers opportunities that agile providers can exploit. According to expert estimates, vehicle connectivity alone has the potential to generate between $30 billion and $50 billion for the global mobility insurance industry by 2030. This amount would represent more than 10% of current premiums. .
Below are four examples of new data-driven approaches companies can use to capture the potential of mobility changes:
- Behavior-based pricing. Premiums based on driving style (“pay how you drive”) or vehicle use (“pay as you drive”) offer policyholders attractive savings opportunities. This approach can pay off in the long run if movement and vehicle data is used to make additional offers.
- New ecosystem offers. With the growth of direct motor vehicle sales, automakers are becoming increasingly important partners. But they should also be seen as potential competitors, as integrated offerings – purchasing a vehicle and insurance from a single source – continue to grow. Insurers should strive to create partnerships within their ecosystem that benefit both parties. For example, they could integrate a simplified insurance offer into the purchase and sale of vehicles using a seamless digital process.
- Multimodal insurance products. Providers can respond to the increasing diversity of mobility with appropriate insurance solutions. For example, they could offer a class of products for everything from private cars to borrowed electric scooters to vacation rental cars. This solution gives new groups of customers access to the company and their insurance offerings that they may not have been exposed to before.
- Services on request. After purchasing a vehicle, 39% of all buyers want to activate additional digital services. For owners of premium brand vehicles, 50% opt for these additional services. Insurers can capitalize on this high demand by offering extended services, such as international insurance, passenger insurance or active driver coaching, at the push of a button.
In the medium term, insurers can plan to seize new business opportunities, using the insights and data they have gathered from mobility insurance solutions to expand into other areas of the mobility ecosystem. . The fleet management, used car buying and selling, electric charging market, and car servicing sectors are just a few of the many options. Greater diversity also offers advantages over aggregators, which tend to benefit from standardization.
As often when driving change, auto insurers will need courage and creativity to move forward. Companies that tackle the challenges early on will emerge stronger as they respond to transportation transformation. Moreover, they will play a key role in shaping the new era of mobility.
Stephan Binder is a senior partner in the Zurich office of McKinsey; Ulrike Deetjen is a partner in the Stuttgart office, where Stefan Poehler is an associated partner; and Kersten Heineke is a partner in the Frankfurt office.
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