Four insurance-transforming ways transportation is changing in the 21st century
The transportation landscape has evolved dramatically within the past few years. Rideshare and e-scooters continue to gain in popularity, while people who drive their own cars now enjoy cutting-edge technology that simplifies the very act of driving.
In a recent Arity webinar, we analyzed how technology and consumer behavior have influenced mobility in the 21st century. Both technology and behavior presents a challenge for auto insurance companies, many of which still offer 20th-century products. The good news, though, is that these challenges also present new opportunities.
Here are four different ways transportation has changed in the 21st century:
1. Automated or Advanced Driver Assistance Systems (ADAS)
ADAS are safety features, such as adaptive cruise control or blind-spot monitoring, that have been available in the commercial trucking industry since the 1990s but are now more prevalent in newer vehicles driven by regular motorists.
ADAS offer terrific advantages. Research shows that warning systems can reduce front-end collisions by as much as 15%, while the Insurance Institute for Highway Safety reports that Volvo’s City Safety technology can reduce rear-end collisions by as much as 39%.
The downside to this safety technology is how expensive it is to fix. And unfortunately, studies show that consumers are willing to pay only $2,300 on average for repairs, a fraction of the actual cost.
ADAS also introduces other risks. As drivers learn to depend on the car to make more decisions for them, they become more easily distracted; for example, they may look at their phones more often instead of paying attention to the road.
Katie DeGraaf, Director of Product for the Mobile Intelligence team at Arity, knows this all too well. On a recent drive from Chicago to Lake Michigan, she rented a Prius loaded with safety features and gadgets.
Once she got used to the adaptive cruise control and lane control warnings, the car was doing most of the work, so she started flipping through music and podcast apps and checking her work email.
“Not only was I distracted,” she said with a laugh, “but I would call myself severely distracted.”
The irony was not lost on DeGraaf, who devotes much of her time thinking about the causes of distracted driving and how to keep people safer.
The challenge for insurance companies, then, is assessing and pricing risk with so many conflicting variables present: fewer accidents yet greater distractions, costly repairs versus what a customer is willing to pay.
2. Autonomous Vehicles
Not too long ago, it seemed autonomous or self-driving cars were about to replace the average motorist. Announcements from Google, Uber, and Tesla about driverless vehicles flooded our news feeds. The Guardian predicted in 2015 that we’d all be permanent backseat drivers by 2020.
That hasn’t come to pass, but the industry is still moving forward. BI Intelligence estimated in 2016 that the U.S. will have 10 million self-driving cars on the road by 2020. Not only that, but the automotive industry will spend more than $85 billion on this technology over the next five years. And more than half of U.S. states have passed legislation around autonomous vehicles.
So even though glitches and accidents have slowed down progress, autonomous vehicles will likely play a big role in the future of mobility. That means that insurance companies must play an equally large role in assessing risk and insuring those who operate or ride in these vehicles.
Uber, Lyft, and other rideshare companies have had a huge impact on everyday mobility, particularly in urban areas.
When rideshare companies first hit the market, the belief was that they’d reduce traffic. In fact, Lyft’s CEO said his goal was to eliminate private car ownership by 2025. However, a recent transportation study found that rideshare actually contributes to congestion, rather than alleviate it.
This is particularly true in cities. According to another study, the number of vehicles per household actually increased in 22 of the largest rideshare cities.
Obviously, rideshare isn’t going away, and insurance companies need to figure out how they can not only support it but also capitalize on this new market while keeping drivers and passengers safe.
4. Micro-mobility or Last-mile Transportation
We’ve seen an explosion of micro-mobility options, from e-scooters to e-bikes, mostly in urban areas. While some are still in the experimental phase, overall, they have become wildly popular.
With 46% of automobile traffic in the U.S. caused by cars on trips less than three miles, micro-mobility can potentially alleviate that traffic. In fact, a recent report indicates that 30% of drivers had replaced a short driving trip with an e-scooter ride. E-scooter use doubled across the U.S. in 2018.
Millennials and younger people who have moved closer to cities are the primary users of micro-mobility. But they aren’t the only ones.
At a recent insurance conference, DeGraaf and her colleagues rode e-scooters to a restaurant. Once they arrived at their destination, they chatted about what would have happened if they had been injured on that brief trip from the convention center to the restaurant. They guessed that homeowner’s insurance would’ve covered the accident, but they were wrong.
Insurance Coverage of New Mobility Is “a Hot Mess”
When DeGraaf arrived back home from the conference, she decided to take a look at all the ways she had moved from place to place over the previous two weeks in her work and personal life.
She discovered that she had used nine different types of transportation. She also discovered something else: “My insurance coverage during all those segments was kind of a hot mess.”
For example, here’s how her coverage varied:
- Rideshare passenger: Covered by the rideshare company
- City transportation passenger: Some coverage by the city
- E-scooter rider: No coverage
The kicker for DeGraaf was that her auto insurer didn’t cover her for any other modes of transportation, even though she’s paying an annual premium on a car.
In this ever-changing mobility marketplace, insurers must be prepared for their customers’ changing behaviors as well as new automotive technologies. By doing so, the insurance industry will discover real opportunities to create products that will actually match consumer need.
In our next post in this mobility series, we’ll discuss how the insurance industry can capitalize on the future of mobility by using mobility data, or enhanced telematics data, and other strategies, too.
In the meantime, feel free to listen to the webinar on which this article is based: Mobility Changes Are Here, Is Your Insurance Business Model Prepared?