Motor Insurance 2.0

Intense disruption is set to drastically alter the motor insurance industry within the next five years. A new report details the impact and why insurers must start adjusting their strategy to remain competitive against future threats.

A significant portion of the global motor insurance market—valued at $200 billion—is at risk, according to a new joint report from BCG and Morgan Stanley. The impact could come from the cumulative effects of several fast-approaching, disruptive trends, including innovative car technology, new alternative mobility, data growth and digitization, new regulations, and overall world economics.

The report, based on interviews with 45 senior insurance executives, OEMs, and technology providers, as well as a global survey of drivers and motor insurance customers in 11 countries, warns, among other key findings, that insurers need to prepare themselves for the following realities:

A Decreasing Motor-Insurance Risk Pool in Mature Economies. Smarter, autonomous cars equipped with collision-avoidance technologies and a reduction in the number of vehicles on the road due to emerging shared mobility opportunities will cause market growth to slow down progressively. In a heavy disruption scenario, mature motor insurance markets could see a reduction in market size by 18% to 60% by 2030 and 54% to 84% percent by 2040.
A Shift from Personal to Commercial Lines of Business. This reality will rapidly come to fruition in both emerging and developed markets as the growing use of shared-mobility solutions, such as ride hailing and station-based car sharing, results in more fleets and commercial vehicles—and as the risk pool becomes more about product liability, since vehicles, rather than drivers, will be cited as the cause of accidents.
A Progressive Transfer of Future Growth Toward Emerging Markets. Although growth will slow somewhat from current rates, it will still be robust in emerging markets, thanks to increasing car ownership and miles driven. China motor premiums, for example, will grow from approximately 13% of the global motor market to 20% by 2025.
Heavy Disruption of the Traditional Motor Insurance Industry by Nontraditional Players. Owners of shared-mobility fleets and other sophisticated players, such as tech giants, OEMs, and telecommunications firms, are already bringing innovative business models, their own proprietary data, more sophisticated and more accurate analytics, and the ability to directly access customers. This will make it increasingly challenging for traditional insurers to successfully compete within both commercial and personal line markets.
An Ultimate Future as Pure Capital Providers. Without ownership of the customer and with the erosion of their traditional advantages in the data and analytics capabilities necessary to price risk and manage claims and fraud, insurers face being marginalized to less profitable risk pools—and a declining importance in the value chain.

The report concludes that the next several years will be crucial for insurers. Many insurers are operating under the assumption that disruptive change still lies far in the future. However, to continue business as usual or even to engage in incremental change would be a potentially fatal misstep.

Insurers must lay the foundations for long-term success now by fundamentally reorganizing and digitizing their business to put the customer’s data at the center of everything for improved transparency and data sharing across all functions—and by diversifying their product offerings and pursuing new partnerships to increase their value proposition and revenue opportunities.

Commercial lines of motor insurance will begin to overtake personal lines by 2030. In even a limited disruption scenario, commercial lines will grow from 17% of premiums in 2015 to 67% in 2040 across the markets modeled in the Motor Insurance 2.0 report.

To learn more about the future state of the motor insurance market, read the joint BCG-Morgan Stanley report in its entirety.

Motor Insurance 2.0

Miguel Ortiz, BCG senior partner, London, and Jean-Christophe Gard, BCG senior partner, Paris, break down why motor insurance premiums could decline by as much as 80% in mature markets by 2040.