The popularity of cellphones sounded the death knell for landlines in private homes and businesses. Now, emerging technology in automobiles such as "driverless cars," combined with other tech becoming available from carmakers and insurers alike, could drive down the frequency and severity of accidents and along with it, the cost of auto insurance.The savings for consumers could be substantial, as much as 30 to 60 percent in five to 10 years, said Donald Light, director of the North American property-and-casualty practice at research company Celent. This isn't good news for auto insurers from a sales standpoint. However, there's no need for panic immediately-Light says that even under the most aggressive scenarios, driverless vehicles won't be deployed in numbers large enough to affect auto insurers for at least 10 to 20 years.
"It's not going to wipe out the auto-insurance business in that time frame, but the writing is on the wall," he said.
In Ohio alone, insurers collected about $5.7 billion in auto-insurance premiums in 2014, according to the Ohio Department of Insurance. The U.S. total is about $210 billion.
Already, analysts have started lowering their ratings on insurers that focus primarily on auto insurance.
Deutsche Bank issued a "sell" rating last month on Progressive, based near Cleveland, in part because of the anticipated rise of driverless, or autonomous, vehicles.
"We believe the concurrent rise of instant ridesharing and autonomous vehicles presents real questions as to whether there will even be an auto-insurance industry as we know it in 20 years, what percentage of cars on the road will be essentially accident-free in 10 years, and whether to acknowledge in just five years that this isn't some ‘George Jetson' fantasy," the bank said in a research report.
The report notes that many Progressive customers are younger drivers, who are likely to be early adopters of changes in the auto business.
"Progressive may find its way to dominating this new kind of auto-insurance world, but it also may find its products completely unnecessary in 2030," the report said.
Progressive and other insurers say they are studying the issue of driverless vehicles and other technologies, such as systems that automatically brake to avoid a collision or that better track vehicles in a driver's blind spot.
"So, clearly, we don't have all the answers, but the point is that we're actively tracking this," John Curtiss, Progressive's auto-product development leader, told analysts at an investor conference in 2013.
"We've developed a model and a simulation that will help us understand and continue to look out on what it will mean as we learn more about these technologies, so we can incorporate it into our pricing (and) continue to offer great rates to our customers. But (the company also hopes to) identify future opportunities that may present themselves as we learn more along this trend."
State Farm, Ohio's biggest insurer, is among the companies and research institutions involved in developing a 32-acre simulated city at the University of Michigan, where driverless vehicles and innovations such as car-to-car communication systems are being tested.
"We want to see how it will impact our business. There are a lot of questions, a lot of things still unclear," said Angie Harrier, a State Farm spokeswoman.
Although the technology might reduce the number of accidents, the repairs could be more costly, she said. There also are questions about the regulation of the technology and who is liable when the technology fails and an accident occurs.
Owners of driverless vehicles still will need insurance in cases of theft, vandalism or damage caused by storms, she said.
"We want to adapt and grow with it," she said.
Research has shown that 94 percent of accidents occur because of driver error.
"That's a huge opportunity to definitely impact driver safety, which is a good thing," she said.
Columbus-based Nationwide says it, too, is keeping an eye on how technology will change driving.
"With the continued development of autonomous vehicles and their potential availability to the public, there will be a number of challenges faced by the insurance industry," said spokesman Eric Hardgrove.
"At Nationwide, we are committed to monitoring technology trends so that we are able to continue meeting the insurance needs of our members and protecting what matters most."
Significant changes in technology that will make cars and drivers safer are mostly in the early stages, but they already affect rates, he said.
Take telematics, best known for equipment such as Progressive's Snapshot that can be installed in a vehicle's diagnostic port to track its speed, braking and range.
Nationwide offers a similar device called SmartRide. The insurer said that more than quarter of its new customers are enrolling in the program and that the safest drivers can reduce premiums by as much as 40 percent.
Other insurers depend on cellphone apps to do the monitoring.
At this point, only 1 to 2 percent of vehicles use telematics, but that share will accelerate, Light said. Just the use of telematics is cutting rates by as much as 20 percent, Light said.
Automakers, meanwhile, have started to advertise their vehicles' collision-avoidance systems, including one commercial that shows a driver who avoids backing into a child.
It will be the same with driverless vehicles; they will make up a small but growing share of the fleet on the road in the first years of availability to the public, but then sales growth should accelerate.
"It's really market-driven so far," Light said. "Auto manufacturers are seeing this as a competitive advantage as opposed to a government mandate."