Shifting Gears: A Status Report  on Insuring the Future of Mobility (Pt. 1)

The insurance industry’s shift toward the future of mobility is well underway. But that doesn’t mean there won’t be some unexpected speed bumps—and surprise opportunities—along the way.

By now, it’s clear that as vehicles become more connected, autonomous, shared, and electric (or CASE, as Swiss Re refers to the future of cars), the traditional landscape for auto insurance will undergo an unprecedented level of transformation.

Today, personal transport increasingly trends toward ride sharing, which is projected to be used by 2.3 billion people by 2029 and to top $480 billion in value by 2032. The purchase or ownership of traditional cars grows less appealing for a swelling percentage of the populace—especially among Generations Z and Alpha. The popularity of hybrid and fully electric cars point toward a cleaner transportare pro populo. And the rise of connected and autonomous vehicles holds the promise of fewer accidents, fewer claims, and entirely new operating models.

According to Accenture, these and other new forms of mobility will represent a $9 trillion global market by the end of 2025. As I posted last year, the changes created by this mobility revolution will increasingly reshape consumers’ relationships with their personal vehicles and redefine what they need and expect from insurers.

For carriers, the intersection of technological advances and market adoption represents an existential crossroads. According to a recent report from McKinsey, connected car technology could disrupt as much as $160 billion in conventional personal lines auto premiums. Trends in urbanization, the gig economy, remote working, fewer personal miles driven (and fewer personal vehicles to insure) can only contribute to this change.

The unavoidable question becomes: What will fill this enormous revenue gap? McKinsey’s report envisions these same CASE technologies opening up a new, $100 billion market propelled by embedded distribution, telematics-based pricing, and coverages for as-yet-unseen generations of autonomous vehicles (AVs) and electric vehicles (EVs). Meanwhile, Capgemini projects that insurance for CASE-based mobility will increase eightfold by 2030—reaching 40% of total carrier volume. But today, only 29% of insurers say they can develop products that adapt to new forms of mobility.

To remain competitive, carriers will need to leverage the same technologies reshaping the market to innovate where the most exciting opportunities await: commercial lines. They’ll also need to attain a new level of agility in an era when advances in—and market adoption of—CASE technologies don’t necessarily progress at the same rate.

To understand what I mean, let’s look at how dynamics have evolved since my last post—and explore the ecosystem and infrastructure enhancements carriers must put in place to master the future of mobility.

Snapshot From the Road to Tomorrow

Connected cars are expected to represent 96% of all new vehicles shipped worldwide in 2030. The shift toward smarter, cleaner cars is precipitating a race to monetize the “vehicle-as-a-platform,” where the vehicle serves as a canvas for other companies and technologies to build upon. It’s also necessitating a transition from personal lines to innovative new forms of micro-and multimodal commercial coverages. But like mileage, progress in each of these areas may vary.

Take EVs, which have been heralded as the future of transportation, and for many, are the vehicles most associated with the promise of connected, autonomous driving. Over the past year, sales of EVs have slowed down in the US (note: paywall) and Europe. High costs and range anxiety are seen as key contributors. Indeed, EVs still cost about 15% more than average traditional internal combustion engine (ICE) vehicles, though that’s starting to change. And insurance premiums for EVs range between 10% and 135% higher than ICE vehicles due to high repair costs for all the technology built into these cars—something that must be factored into insurance coverage in both personal and commercial lines. Yes, EV sales are up 20% this year, but are not expected to outstrip those of gas-powered vehicles until 2048.

Likewise, AV technology hasn’t been progressing as quickly over the past year as many originally anticipated. Technical obstacles, regulatory challenges, and other factors have even led tech companies and OEMs to throttle back on ambitious driverless operations and AV programs. Yet as Forbes points out, despite the media-driven backslash, autonomous cars, taxis, and shuttles have successfully driven millions of miles in 22 countries in recent years.

Connected car platforms also promise to open up whole new avenues for creating value as cars evolve from “freedom machines” to mobility-based network nodes that offer drivers and passengers a full range of novel experiences enhanced by continuous connectivity, AI, and intuitive new interfaces. Like the cybernetic Cylon Raiders I referenced in my post last year, connected car platforms will grow to work symbiotically with the driver—reacting to, or even anticipating, needs or desires in real time. Stuck in traffic? Your connected car may notify the office that you’re running late and have lunch ordered for clients while they wait.

Consumers are here for it. Depending on the region and type of vehicle, 40% to 60% of new car buyers say they’re highly likely to activate additional digital services, features, or other upgrades if offered. That figure rises to as high as 65% of owners of premium brand vehicles. These numbers are highest for EV owners, with EV buyers in China expressing the most interest.

In the US, nearly 40% of drivers are willing to switch automotive brands based on connectivity offerings. Ditto for drivers in Germany. In China, however, 63% of EV drivers would do the same. It’s no wonder that a global survey of auto executives from Accenture finds that 83% believe such services could be the key differentiating factors for competitive advantage by 2040—to the tune of $3.5 trillion in additional revenue worldwide.

For car owners, this might mean paying a monthly fee to turn on heated seats during winter. For insurers, this could mean offering extended services—on-demand coverage for passengers, active coaching for new drivers, or international coverage at the touch of a button.

Connected Mobility: From Embedded to Pay-as-You-Drive & Beyond

Today, the connected car experience is taking shape in more foundational (and exceedingly crucial) ways. Just look at Tesla, Ford, and other auto manufacturers embedding insurance distribution directly into the purchase of new cars and even moving into the risk-bearing side of the business.

According to the J.D. Power 2024 US Insurance Shopping Survey, 35% of personal auto insurance customers report interest in buying insurance bundled with a vehicle at the point of sale. By decade’s end, McKinsey expects up to 30% of personal lines auto premiums will be generated through embedded insurance offers.

For OEMs, embedded insurance represents a new, incremental revenue stream that adds value by simplifying the acquisition of insurance for new car buyers. Automobile OEMs may create full-stack insurance offerings on their own, owning risk and revenue for insured drivers. They may build alliances with carriers, where the OEM earns incremental revenue as an intermediary of auto insurance. Or OEMs may simply monetize the data collected within cars.

For carriers, embedded insurance represents an exceptionally efficient distribution model compared to the roughly 20% of revenues they spend on broker commissions and marketing costs. It also affords them the opportunity to improve margins and boost growth at a time when maintaining a combined ratio of less than 100% can be tough.

But beyond embedded insurance, ingesting data sources enables carriers to provide more holistic, end-to-end solutions—including telematics-based “pay-as-you-drive” or “usage-based insurance” (UBI) policies.

Today, demand for smartphone-enabled UBI is high. According to TransUnion, the number of people who have opted for UBI-based policies when offered them tops 60%. And 78% of commercial line auto insurers are in the research phase of preparing for UBI-based products. By next year, more than 60 million UBI subscribers are expected worldwide.

An Eye on What Comes Next—and When

All of this is just the beginning. Over the next decade, look for autonomous technology to evolve and integrate into personal vehicles, public transit, and the transportation of goods worldwide. By 2030, ABI Research estimates that 69.3% of all new passenger vehicles will include Level 2 (partial autonomy), Level 3 (conditional autonomy), or above. Entire fleets of Level 3 and even higher-autonomy Level 4 commercial vehicles—like those deployed by Traton, Europe’s largest trucking conglomerate—will become commonplace.

Read Part Two to learn what this and important societal changes mean to the future of mobility, and the unprecedented opportunities they represent for tech-forward insurers able to navigate advances whenever and however they arrive—unevenly, in fits-and-starts, or seemingly all at once.