Will COVID-19 accelerate changes to motor insurance?

Published by FP Admin on July 22, 2020

Will COVID-19 accelerate changes to motor insurance?

The pandemic has changed sundry aspects of people’s daily lives; it could also speed up changes to driving habits and the way motor insurance works.

Coronavirus has transformed a myriad of things in our daily life. And as lockdown has continued, conversations have shifted to consider how many of the new habits forced on society are not just temporary but will endure beyond the pandemic. People are also increasingly looking for silver linings in their enforced new lifestyles, and to innovate better ways of living and working to adopt more permanently for the future.

Driving is one topic which has been massively affected by COVID-19. Busy roads have fallen silent. The public has adapted to cope with social isolation, remote working and online shopping, cutting out daily commutes and regular road trips, whether in private vehicles or public transport.

Looking ahead, electronic vehicles are increasingly on the roads, while driverless cars and delivery drones are seemingly poised for more widespread adoption in future. The pandemic has highlighted a further health benefit that autonomous vehicles (AVs) could bring.

Local authorities are under pressure to continue providing a range of essential services, such as public transport, emergency services, logistics for essential supplies, recycling and refuse collection. All of which puts humans in harm’s way, whereas use of autonomous technology which can keep humans physically further apart could make social distancing guidance easier to implement.

We’ve already seen reportage of drones being used by police and other essential services during the lockdown1. However, pandemic disruption to manufacturing and other businesses has also slowed down the rollout of autonomous tech2.

Rise of the machines

Like most industries, motor insurance has changed dramatically in recent years, led by the internet and e-commerce, and more recently through usage-based insurance made possible by the connectivity of the so-called internet of things, telematics in the case of vehicles. Telematics has begun to change data-led motor underwriting, and by more closely linking premium to performance, to encourage safer driving for motorists.

Adoption for a range of telematics has increased in recent years, whether built-in by manufacturers, added to the dashboard, or downloaded as a smartphone app. The usage- based insurance market is projected to reach $125.7 billion globally by 2027 from an estimated $24.0 billion in 2019, growing at a compound annual growth rate of 23%.3

Autonomous vehicles (AVs) are likely to be the next stage in the continued transformation of motor insurance. Burns, Cunningham & Mackney, PC4 found 94% of vehicle accidents are caused by human error, so widespread adoption of AVs could lead to a dramatic fall off in the number of accidents.

And motor insurers could also see a significant reduction in the cost of fraudulent claims as they are likely to be almost impossible to make. In 2019, Cifa’s report says fraudulent claims in motor insurance have increased by 45%, with 21-30-year-olds making up the largest group5.

That doesn’t mean there will be no risk to be managed or insurance need at all. Future motor insurance is rather likely to be increasingly focused on design and technical vehicle faults, with risk management heavily weighted towards avoiding hacking. Motor insurance will have to evolve and perhaps look more like a product liability coverage rather than the motor insurance market we know today.

What is clear, is that we are in a period of accelerated transition, which the COVID-19 pandemic may have accelerated, and which public sector risk managers will need to navigate their way through. Effective and comprehensive insurance cover that fills all the gaps as the landscape develops will be vital during this period of change.

Published Date 22nd July 2020

Disclaimer

This note is not intended to give legal or financial advice, and, accordingly, it should not be relied upon for such. It should not be regarded as a comprehensive statement of the law and or market practice in this area. In preparing this note we have relied on information sourced from third parties and we make no claims as to the completeness or accuracy of the information contained herein. It reflects our understanding as at 21st July 2020, but you will recognise that matters concerning COVID-19 are fast changing across the world. You should not act upon information in this bulletin nor determine not to act, without first seeking specific legal and/or specialist advice. Our advice to our clients is as an insurance broker and is provided subject to specific terms and conditions, the terms of which take precedence over any representations in this document. No third party to whom this is passed can rely on it. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide herein and exclude liability for the content to fullest extent permitted by law. Should you require advice about your specific insurance arrangements or specific claim circumstances, please get in touch with your usual contact at Risk Management Partners.

Disclosure

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