PwC has just published an interesting and thoughtful paper on, “The Reshaping of Auto Insurance.” The paper describes the possible impact of various on- board technologies (automatic braking, telematics, etc.) on auto losses and the longer term potential for changes in auto insurance business models.

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Here are a few Celent comments:

It is true that changes in frequency, and especially severity, of motor vehicle accidents will not drop overnight. But the PwC paper looks only at “on-board” technologies. By doing so, it ignores the potential impact of automated traffic law enforcement (e.g. speeding and red light cameras). Depending on the political will (and desire for revenue) of state and local governments, these technologies may have a quicker and more dramatic impact than onboard technologies.

--> There is also a potential incentive for governments to mandate Vehicle to Vehicle (V2V) communications as a way of increasing the carry capacity of roadways, and avoiding costly construction–plus, arguably, it is a green technology.

If and when liability for many accidents shifts to the manufacturers of the automobiles (and/or the on-board equipment); it is likely that the frequency of accidents will be significantly lower, leading to lower losses, and lower premiums for auto insurers.

So change is coming for auto insurers in terms of business and operating models. The big question is how quickly.