Celent Says

Auto Insurers' Losses, Premiums are Certain to Drop—Eventually

Donald Light
Insurance Experts' Forum, February 7, 2013

Last month, I&T posted a story about an exchange that took place at the Property/Casualty Joint Industry Forum between State Farm’s CEO, Edward Rust Jr., and an industry analyst, Brian Sullivan.

Mr. Sullivan said, “It’s impossible for anyone to look at the data and say there won’t be fewer accidents than before. The technology is getting better and drivers are getting safer. I think this business is shrinking: Fewer accidents means fewer exposure.”

And Mr. Rust responded, “I don’t see the risk being mitigated so much that the premium falls significantly,” Rust added. “The cost to repair a vehicle that has been in an accident is much greater. It’s not your Grandpa’s Olds.”

I will judiciously say that both Mr. Sullivan and Mr. Rust are correct—but the real question is the timeframe during which each of them is correct.

This year and next year and maybe the year after, there won’t be much technology-driven reduction in auto losses (and associated drops in premium).

But inexorably collision avoidance technology is going to get better, and even more importantly, it will become more pervasive among the vehicles on the road.

And while insured losses depends on severity (i.e. the cost to repair partial losses or replace total losses), it also depends on frequency. As collision avoidance technology (and automated traffic law enforcement, and yes eventually driverless cars) advances, frequency will drop. And in all likelihood severity will also drop—for example when an automatic braking system reduces the speed at impact from 15 mph to 5 mph.

So losses will drop and insurance premiums will follow. The big questions are how much and how soon.

This blog has been reprinted with permission from Celent.

Donald Light is a senior analyst in Celent's insurance practice, and can be reached at dlight@celent.com.

Readers are encouraged to respond to Donald using the “Add Your Comments” box below.

The opinions posted in this blog do not necessarily reflect those of Insurance Networking News or SourceMedia.

Comments (0)

Be the first to comment on this post using the section below.

Add Your Comments...

Already Registered?

If you have already registered to Insurance Networking News, please use the form below to login. When completed you will immeditely be directed to post a comment.

Forgot your password?

Not Registered?

You must be registered to post a comment. Click here to register.

Blog Archive

Big Data Is Paying Off

Insurers are getting business benefit out of their big data projects, but these projects alone won't grow their business.

What Can Insurers Learn from Home Depot?

The latest cyber-attack highlights the importance of helping policy holders defend themselves.

Not Your Father’s Insurance Company

Carriers need to look at new and impactful ways to be there for their customers.

How to Attract Top Tech Talent

When it comes to rankings of the best places to work, insurers are few and far between. Here’s what those who make the lists do to appeal to IT professionals.

Watch Out. Apple with Mayo is Heading Your Way

From a health care, health insurance and Internet-of-things perspective, questions still remain.

New Generation of Data and Analytics in Cloud

Cloud-based data and analytics products are becoming more common among technology companies, small and midsize businesses and departments.