Owner Vs. Subscriber: What’s Driving Changes In The Auto Industry?
For decades, car ownership has been a rite of passage for many people. Millions of miles of roads and highways have been built to get drivers from one place to another, entire cities have been remodeled to accommodate the car and movies and music celebrate the freedom and adventure the automobile offers.
But the traditional model of car ownership is about to be left in the dust as car-sharing, ride-hailing apps and pay-as-you-use subscription services become more and more popular. By 2025, subscription programs could have a collective fleet of more than 16 million vehicles in the U.S. and Europe and account for 10 percent of all new vehicle sales. Recent developments, including Lyft’s monthly subscription plan and e-scooters in San Francisco, demonstrate how subscription models are gaining steam.
The shift toward subscription-based models could have a far-reaching impact on many aspects of daily life. Jillian Slyfield, leader, U.S. Digital Economy, Aon, states, “We’re seeing a shift in how consumers view ownership and traditional industries are responding and new ones are being created.” Indeed, whole industries, from automotive to insurance, are in the process of rethinking business models and creating new products and solutions to accommodate the shifting tastes and trends.
The following sections highlight recent trends and the impact subscription models could have in the coming years.
Shifting Consumer Preferences
The automotive industry is currently experiencing a strong period of growth. In the U.S., for example, new vehicle sales exceeded 17 million annually from 2015 to 2017. However, shifting consumer trends are already shaking up the industry and its vision for the future.
Consumers appear less eager to own a car as they once were, with 45 percent of millennials indicating that they value transportation but don’t see vehicle ownership as their preferred path. People who live in urban areas, who tend to have a greater range of mobility options, are exploring options beyond car ownership as more than half prefer access to mobility over vehicle ownership.
Many consumers no longer view owning and driving a vehicle as the only way to get from A to B. In the U.K., for example, the number of individuals aged 17 to 20 with a driver’s license has dropped 40 percent since the 1990s.
The rise of subscription services has also played a significant role: consumers have a greater selection of mobility options than before – and at an affordable, usage-based price point.
And while there is no doubt that consumer preferences will impact car ownership and subscription models, forecasts on mass adoption vary. Independent think tank RethinkX, for example, anticipates a big impact on mobility, including these notable predictions:
Automotive: An Industry In Transition
The term “mobility as a service” refers to the shift away from cars owned by individuals and toward vehicles as a consumer-based service, whether that be ride-sharing or a subscription model.
Mike Stankard, leader, U.S. Automotive Practice, says, “The consumers in the future are going to be in vehicles that are highly technologically driven, electrically powered – and they probably won’t own the vehicles. They’re going to be provided by commercial companies that are going to be selling transportation by the mile.”
Auto leasing, which has been around since the 1940s in the U.S., is perhaps the most popular alternative to traditional ownership. Recently, it has gained momentum, rising from 20 percent of new car sales in 2006 to 31 percent in 2016.
From luxury carmakers to start-ups, there is an increasing trend toward the subscription model: choose a plan, pay a monthly fee and go.
How Will The Subscription Model Impact The Insurance Market?
Slyfield notes that across various forms of mobility – whether scooters, ridesharing or subscription lease – today’s consumers expect insurance to be included (or, at a minimum, to be available for purchase) at the time of the transaction. Therefore, adequate insurance coverage should be considered part of the offering at an efficient usage-based price.
For car subscribers in particular, costs such as auto maintenance and insurance are likely to be included in the subscription price. While the U.S.’s private auto insurance market has grown steadily over the past 10 years, subscription models might reverse that trend. Combined net liability and collision premiums increased from $158.6 billion in 2008 to more than $222.2 billion in 2017. If subscriptions become more popular, automobile insurers might have to navigate a newer scenario of commercial and private auto insurance.
A more significant development for auto insurers is that as subscriptions increase demand for commercial auto insurance, they will reduce demand for individual coverage. This change could lead automakers to move away from traditional insurance altogether. Those carmakers – armed with the data generated by car subscribers to facilitate underwriting and claims handling – could potentially move to captive insurance or other self-insurance options.
It’s not surprising then that several insurers are teaming with automakers to provide the insurance component of their subscription services. Slyfield notes that liability within the new model also poses a complication. “Insurers are tackling whether coverage applies when someone other than the subscriber is at the vehicle’s wheel.” She continues on how personal umbrella insurance might work together with the subscription vehicle’s commercial primary insurance – both critical to sort out.
An additional complexity is the state-based insurance regulatory system in the U.S.; regulators for individual states are currently grappling with insurance coverage issues around the car subscription model.
The impact of changing attitudes on vehicle ownership and the rise of subscription programs will extend far beyond these three areas. From the transportation and logistics industry to urban planning and even the energy sector, nearly every facet of daily life and commerce will be affected.