Auto insurance has typically been a rather inelastic economy. As a legal requirement in most areas, fluctuations in price have resulted in two predominant outcomes: teeth-gritting compliance for end-users that can barely afford it, or a lack of compliance for those that just couldn’t make ends meet to afford it. For the latter, their lack of insurance often resulted in others footing the bill for uninsured drivers, prompting a rise in auto insurance options for un/underinsured drivers- and a subsequent averaging of the auto insurance marketplace, only furthering the validity behind calling the auto insurance market an inelastic economy.
A predominant consensus of auto insurance being too expensive is only further catalyzed by seemingly arbitrary rules for auto insurance premiums. A perfect example of this critical industry flaw is demonstrated by the well-known fact that auto insurance premiums are higher for younger drivers, and they know it. While this might make sense for the first one or two years of driving, one would logically conclude that after that first bit of demonstrated competence and responsibility that the premium would be decreased. Reality dictates otherwise: in practice, auto insurance premiums are higher until 25-27 years old, depending upon the auto insurance company.
The author takes particular exception to this critical industry flaw. As a combat veteran that enlisted at 17 years of age, I have demonstrated a high level of maturity and responsibility throughout my entire life. While it may or may not hold true that millennial stereotypes are a quantifiable factor in pricing auto insurance premiums, it is simply unfair to paint such a wide net on a demographic with a highly noticeable and different sub-demographic. One auto insurance company, USAA, has been the saving grace for individuals such as myself, with lower premiums for factors like length of military service and rank; however, the consensus of monitoring young drivers is still not only in existence, but offered as a product and service via USAA.
For those that didn’t serve in the military, options are even more slim. Without the premium deductions USAA offers, many drivers are left with a hard choice of either cutting their quality of life to an even lower level, or risking driving uninsured: a car insurance comparison site shows clearly that the rates offered would be a large percentile of the monthly monetary allocation of average drivers. These observations are far from muted, and even in a so-called “highly competitive market” it’s still a broker’s game.
We are on the cusp of a disruptive innovation on several major economies, and it is my assessment that this will shatter the decades-long inelasticity of auto insurance premiums.
Companies such as Uber have been developing autonomous, or self-driving, cars for the past decade. It’s fair to predict that within the next decade, a slice of the automobile market share will belong to autonomous vehicles. Additionally, it is a reasonable assessment to project that autonomous vehicles will take a predominant market share within many of the current vehicle-owners’ lifetimes. The auto insurance premium market will undergo dramatic changes during this span of time, and it’s projected that the market’s focus will shift from underwriting to a risk-mitigation role.
Ride-sharing continues to be a booming industry, especially in use-cases like Uber and Lfyt. Lyft reported a 25% growth in just one quarter of 2017 alone, and it is not uncommon to find a coworker that no longer owns a vehicle, leveraging Lyft or a combination of alternative transportation services. Despite auto insurance historically being a rather inelastic market, if this trend continues, it will certainly play out in some capacity in the auto insurance markets: and Lyft drivers, amongst others, will almost certainly need to pass off the possible premium increases.
Perhaps the most under-stated innovation in automobiles and auto insurance is the boom of cryptocurrency and blockchains. 2017 saw Bitcoin become a buzzword many have heard of, but this is only the beginning. As previously discussed, an increase in auto insurance premiums contingent with a growth of ridesharing and less automobile end-users will need to be passed on for a sustainable economic model. Passing these raised premiums is already being discussed by major manufacturers such as Toyota. The most shocking and undershared development of 2017 was IOTA partnering with Tesla, which will have interesting applications and use-cases stemming from fee allocation for vehicular recharge and potential for automobile manufacturers to start becoming auto insurance brokers themselves.
Perhaps the future holds an epic showdown of Geico and State Farm versus Toyota and Tesla. Perhaps the current auto insurance giants will start to keep a better a pulse on the industry and innovate before it is too late. Regardless, while it is impossible to state precisely what the auto insurance market will look like a decade from now, one truth is undeniable: it will be dramatically different.
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