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Will driverless cars mean the end of auto insurance?

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Driverless cars could mean a huge downsizing of the auto insurance industry, as the frequency of accidents declines and liability shifts from the driver to the vehicle’s software or automaker.

KPMG, an advisory and research firm, predicts that these trends mean that within 25 years the personal auto insurance industry could shrink to less than 40% of its current size. If cars are self-driving, perhaps owners will only need to buy car insurance policies that cover car theft and non-crash damage such as hail and floods.

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State Farm, the largest auto insurance company in the country, appears to be making plans to survive in this new world. One possibility could be for the insurance giant to reinvent itself as a “life management company,” as the company put it in a patent application recently published by the U.S. Patent Office.

State Farm’s patent application, “Aggregation and Correlation of Data for Life Management Purposes,” describes how the company could analyze data about a customer’s vehicles, home and personal health, find patterns and offer “personalized recommendations, insurance discounts, and other added values or services that the individual can use to better manage and improve his or her life.”

To that end, State Farm would collect data about:

  • Your home, including security systems, environmental conditions, energy use and home automation.
  • Your vehicle, including use of the vehicle and your physical and mental state while driving. (NerdWallet previously has reported on State Farm’s patent-pending plan to get inside your head while you’re driving.)
  • Your health, including weight, blood pressure, sleeping patterns and fitness activities as reported by “wearable, implantable, ingestible, or hand-held personal health sensors.”

State Farm could use the data to send you advice, alerts, coupons or discounts on insurance or other goods and services, according to the patent application.

In one example given in the application, State Farm’s system might determine you are not sleeping well and correlate that with information that shows your home gets cold at night. The system would suggest that you raise the temperature to sleep more soundly.

Or your personal health metrics might show a high level of stress. The State Farm system might be aware of a recent break-in affecting your home or vehicle and recommend extra security measures to give you more peace of mind.

In response to an inquiry from NerdWallet about the patent application, a State Farm spokesperson said the insurer “takes the privacy of our customers seriously. We do not sell customer information, and we do not allow those who are doing business on our behalf to use our customer information for their own marketing purposes.”

The spokesperson declined to comment specifically on the patent, beyond saying the company is “actively innovating in a number of areas.”

Transforming into a life-management advisor could play to State Farm’s strengths:

  • State Farm has a vast customer base. At the end of 2014 it had 82 million customer accounts, including auto, home, health and life insurance policies and banking accounts.
  • The company also is adept at analyzing huge amounts of data about people, cars, homes, health, pets, weather and much more. It processes about 35,000 claims a day.
  • State Farm has a lot of money. The mutual company had a net worth of $80 billion at the end of 2014, a year in which its subsidiaries generated $4.2 billion in net income on $71.2 billion in revenue. (2015 figures are not yet available.) The company can afford to test new ideas and technologies.

State Farm isn’t the only insurance company eyeing a future in which its expertise in risk assessment is harnessed to provide recommendations and advice to consumers. Travelers, for example, recently applied to patent a device that offers specific suggestions for managing errands and other travel. Customers would be able to see a map of “risk zone” data for places they want to go, such as stores, restaurants and roads. They could then plan the day “with an eye toward how ‘risky’ such endeavors may be,” according to the patent application.

Products and systems described in patent applications may never make it to the consumer.  But State Farm’s “life management” patent application fits a pattern for the company. Applications published over the past several years show that State Farm sees a promising future in consumer-data analysis that could allow it to calculate scores for customer behavior, change customers’ daily habits through advice, recommend products and target advertisements based on where you drive.

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