The future of auto insurance

The auto insurance industry has undergone a tremendous development in recent years, as technological advances and changing consumer habits have led to new trends in auto insurance. Currently, insurers are facing significant challenges, especially with regard to the impact of COVID-19 on their industry. In this article, we take a look at the future of auto insurance, its current trends, and the outlook for 2022 from an auto insurance perspective.

The future of auto insurance

In the future, technological developments will continue to play an important role in shaping auto insurance. In particular, the increasing automation of vehicles will have a significant impact on the way insurance is created and sold. The introduction of self-driving cars may reduce the risks associated with driving, which in turn could reduce insurance premiums.

Another important trend that will emerge in the coming years is the use of telematics systems in auto insurance. These systems collect data on the driver's driving habits and allow insurers to set premiums based on individual driving patterns. In this way, the premiums for those who drive carefully and responsibly can be reduced, while risky drivers have to pay higher premiums.

In addition, innovative products such as "pay-as-you-drive" insurance will continue to gain in importance. Here, drivers only pay for the actual kilometers that they have driven and not for a pre-determined number of kilometers, which is often set too high. This type of insurance offers flexibility and cost savings for frequent drivers or those who use their cars infrequently. Networked cars and data-driven insurance are merging into "one product".

Current trends in auto insurance

The auto insurance industry is constantly changing in order to meet the needs of consumers. A current trend is the increasing use of online platforms and comparison portals that allow consumers to quickly and easily compare and select different insurance offers.

Another trend is the introduction of environmentally friendly car insurance policies that are based on the vehicle's emission levels. By introducing these products, drivers who own more environmentally friendly vehicles can receive premium discounts or other benefits. This promotes policies centered around sustainability and environmental protection.

Cooperation between insurers and automakers will also become more important in the future. Through the use of telematics systems and other technologies, automakers can offer personalized insurance quotes to their customers. This gives consumers more options and ensures a closer relationship between automakers and insurers. The relationship tend to be dominated by sales and no data privileges are expected for any one party.

It will be interesting to see how new registrations and ownership changes develop this year, and whether there will be a reduction in the supply of chips to the automotive industry.

There is another issue of becoming a game changer. The digitization of vehicle registration via the KBA key account interface "Opportunities for Insurers and Their Customers" (see Federal Ministry for Digital and Transport). Strategically, insurers must defend both their central role in the approval process as well as their direct access to customers amidst criticism from Internet providers and the automotive industry. At the same time, the insurance must offer customers auto registration as a service.

In order to address the most important digital issues, insurers will need to equip themselves with innovative and state-of-the-art inventory management technology. Otherwise, these trends will pass these companies by.

2022 from the perspective of auto insurance companies

2022 was another challenging year for auto insurers, especially due to the impact of COVID-19. The pandemic has changed the way people use their cars, which has resulted in declining claims expenses. In many countries, the number of car accidents was lower than in previous years, as fewer people were on the roads. (see GDV statistics on claims frequency/ RKI/ Humboldt University)

However, the decline in claims expenses also had a negative impact on the income that auto insurance companies received from premiums. With fewer claims being reported, insurers were only able to generate "1% more revenue from insurance premiums." According to Marco Morawetz with Gen Re, this led to an inflation-adjusted "decline in income from premiums of more than 6%" and a difficult economic environment for insurers.

On the other hand, inflation has led to changes in claims expenses and income from premiums. Inflation means higher costs for materials, repairs and labor. As a result, the expenses for insurance companies' claims are rising. At the same time, insurance companies are also increasing their premiums to cover the higher costs. The increase in premiums is usually borne by the policyholders. In this regard, even Frank Grund from BaFin warns against price increases in 2023: "Insurers must make their business storm-proof". According to observations, the prices as of January 1, 2023 are significantly below expectations and the premium adjustments tended to be at the lower end of expectations.

Was there a switching boom?

No, though the willingness to switch did increase from 1.3 to 1.8 million according to a study by the consulting firm Sirius Campus which also stated that "most customers have remained loyal to their existing providers because the savings they could achieve with other providers were either too low for them or they didn't find a better deal."

The 3 key takeaways:

  1. The expected boom in this exchange business has failed to materialize; even the portals are no longer growing as strongly, despite intensive advertising.
  2. Prices remain under pressure in the face of ongoing inflation and rising costs on the claims side.
  3. There is no game changing topic at the moment - as an insurer, you have to keep an eye on all developments relating to the digital registration process.

Would you like to talk about modern inventory management systems or are you planning to modernize your IT? Then feel free to contact our expert Karsten Schmitt, Head of Business Development.

Do you have any questions or comments? Then please leave us a comment.

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