(Image source: Infiniti.)
In 2019, some experts predicted the end of private vehicle ownership and the growth of shared mobility or Mobility as a Service (MaaS). Then the pandemic hit. COVID-19 and its impact on mobility patterns has altered original forecasts and shifted expectations. Today, the future of transportation looks very different than it did just one year ago—and it continues to evolve. Several trends have emerged, however, that are shaping mobility’s “next normal” and promising to have a long-lasting effect on the auto insurance and collision repair industries.
1. Reduced Reliance on Shared Transportation
The ridesharing sector had been booming until recently. Between 2013 and 2016, Uber and Lyft went from 30 million vehicle miles traveled per month to 500 million in the US, a compound annual growth rate of more than 150 percent. Public transit projects were also increasing rapidly, including the Seattle region’s $53.8 billion Sound Transit 3 plan that will expand the existing light rail network. However, no one predicted the massive shift to virtual work as a result of the pandemic. The reduction—and in some cases elimination—of daily commutes combined with an overwhelming desire to mitigate risk of infection has led to significant declines in public transit ridership. In Q4 2020, the U.S. experienced a 62.16 percent ridership reduction, according to the American Public Transportation Association, and Canada experienced a 65.83 percent reduction. Similarly, Uber reported a drop in ridership of 50 percent in Q4 2020 compared with the same period in 2019. Startups also began shying away from shared mobility business models. Not even global corporations such as GM were immune. The OEM shuttered its Maven car-sharing platform in the wake of the pandemic after four years of operation. With the summer travel season now upon us and many international destinations still closed to North Americans, consumers are again opting for road trips over flying. This will mean more vehicles on the road and more miles traveled, leading to a likely increase in claims volumes.
2. Growth in Personal Vehicle Ownership
A September 2020 study conducted by McKinsey & Company’s Center for Future Mobility found that consumers’ key consideration when selecting their mode of transportation was reducing the risk of infection. After all, owning a vehicle is a great way to prevent exposure to a pathogen. “The vehicle, in many ways, has become our own personal bubble,” according to Johnathan Smoke, chief economist at Cox Automotive.
A stall in urban population growth and new work-from-home policies may also contribute to the increase in personal vehicle ownership. Prior to the COVID-19 outbreak, experts predicted that two thirds of the world’s population would live in dense urban areas by 2050. However, recent U.S. census estimates show that many states with large urban areas experienced the greatest population declines in 2020 when compared with 2019. Conversely, states with more rural and suburban communities saw the most significant increase in population. This move to suburban and rural areas where shared mobility alternatives are hard to find—especially public transit—elevates the need for personal vehicles. While commute traffic may never return to pre-pandemic levels in some regions, we could see more gridlock at off-peak times as many employees have increased flexibility in their schedules. This makes traffic patterns harder to predict. Although the industry experienced a significant reduction in claims volume in 2020, it’s likely that volume will begin to go up again—with the possibility of surpassing pre-COVID levels as a result of more miles driven.
3. Increased Interest in Hybrid and Electric Vehicles
Another recent study by McKinsey & Company found that 56 percent of North American respondents are more interested in the purchase of a hybrid or electric vehicle (EV) due to the pandemic, with half of those individuals indicating that they were “significantly more” interested. Those results may seem odd since there is not an obvious relationship between electrified powertrains and global pandemics. However, further analysis revealed that an increased environmental focus was the reason behind many of the responses. Twenty percent of respondents stated that sustainability concerns were one of the top three reasons for their interest in hybrids and EVs, and 19 percent cited recent air quality improvements (as a result of fewer vehicles on the road). This data—coupled with available government stimulus funds and incentive programs—indicates that we may experience a more rapid uptake of alternative energy automobiles than previously anticipated.
State and provincial governments are also enacting policies to increase the rate of EV adoption. Washington and California imposed mandates designed to phase out sales of gas- and diesel-powered light-duty vehicles in favor of zero-emission passenger cars by 2030 and 2035 respectively. And earlier this year, Nova Scotia offered consumers an instant rebate at the time of purchase for new and used EVs and Plug-In Vehicles, with the introduction of the Electrify Nova Scotia Rebate Program. Further highlighting the growing importance of EVs in the car parc, the International Energy Agency’s January 2021 report showed that U.S. light passenger vehicle sales volume fell 15 percent in 2020 while EV sales volume actually grew by 4 percent.
COVID-19 has changed the way we work and move about our world causing many to reimagine the role of the personal automobile. More than any time in the last decade, vehicle ownership—especially EV ownership—is primed to take center stage when it comes to mobility. This likely means that loss costs for insurance carriers—while drastically reduced in 2020—could begin a steady climb in 2021 with more cars on the road and miles on the odometer. And while collision repairers have been hard hit financially throughout the pandemic, the expected increase in claims volume will deliver welcome relief.