The infrastructure bill, in the form that it passed in the Senate, allows for insurance companies to decrease risk-- but possibly increase costs-- as it moves towards a more personalized model.
Notably, future automobiles will likely need to include passive technology to monitor for driving under the influence and automatic emergency braking. In 2020, 36,096 people died in car crashes in the United States, according to the
But those technologies, while they will likely decrease crashes and make the roads safer, will increase the costs of repairs when a crash does happen, according to Robert Passmore at American Property Casualty Insurance Association. The technologies that are highlighted in the infrastructure bill are expensive.
The requirements for safety equipment will mean that, after an accident or damage, the vehicle will need to be scanned to make sure that everything still works correctly. So, even if the technology is not damaged in an accident, the mere presence of the safety technology will drive the price up, according to Passmore.
“It means fewer crashes, so fewer claims, that's a good thing,” said Passmore. “That means control of costs [by having fewer crashes] there helps keep premiums down for everybody. On the other hand, some of the benefits of reduced crashes will be offset by the increased cost of repair for the vehicles that do crash.”
The infrastructure bill defines “new” as a “passenger motor vehicle” that “(A) is a new vehicle (as defined in section 37.3 of title 49, Code of Federal Regulations (or a successor regulation)); and (B) has not been purchased for purposes other than resale.” As the average age of a car is 11 years, according to Passmore, the advances of these technologies will occur more down the road.
Insurers generally charge premiums that are reflective of risk, but these new standards and technologies will contribute to the vehicle’s risk characteristics, according to Passmore. In the future, there will likely need to be a way to keep track of what cars have which technologies, made by which manufacturer.
“Just like drivers today, some drivers have better records than other drivers,” said Passmore. “So if you have a lot of accidents and tickets you are going to pay more. And the vehicle system will have a role in that as well. If you have a vehicle that has the safety features and gets in fewer crashes, that's probably gonna be reflected in your rate.”
The inclusion of mandatory safety technology and the push for more sustainable electric vehicles in the bill will lead to some higher costs as the infrastructure will need to support them, as well. However, those technologies will also allow for further personalization in the realm of insurance.
The push for electric vehicles will also lead to further individualized insurance, according to Ernst Renner, partner at Capco and head of insurance. The investment into these electric vehicles will offer more options and diversity that allow for more personalization. These technological innovations could lead to faster innovation in the realm of driverless cars, according to Renner, which is an area of insurance that has been coming for years now.
The personalized insurance will also be impacted by the section of the infrastructure bill that discusses “per mile usage” of the highways. Renner used the example that, if he was on the west coast and needed a car, rather than renting an uber, he could rent an electric, driverless car for himself. Then, he could buy personalized insurance for the car that drives him, separate from any other insurance he may or may not have.
“We will see continued investment in more personalized types of insurance products, maybe point in time, or point of life offers,” said Ernst Renner, partner and head of U.S. insurance at Capco. “An example of these personalized products could be the use of a car-share service to the use of a driverless, electric vehicle. It's going to drive me anywhere and I'm going to use it for a week. I purchase coverage at that point in time, for that duration, that considers autonomous electric vehicles that are not owned by me, but by another individual.”
Smaller startup companies will likely benefit from the infrastructure bill as well, according to Renner, as they are the ones who are bringing the technology and innovation to the larger companies. Looking forward, Renner sees greater demands for innovators in the insurance sphere.
The infrastructure bill opens up new kinds of industries and companies to respond to the needs of the bill. Insurers will need to understand risk profiles for industries that will be new as a result of the infrastructure bill. There will be new demands in the insurance sphere.
“I'm excited by it,” said Renner. “I think what will happen will be more access to capital for innovative companies. Companies that are bringing technologies, whether it's transportation or the build-out of core infrastructure, like rail or roads or broadband.”
