Many insurance companies are using technological innovations – artificial intelligence (AI), telematics, predictive analytics and machine learning – in ways that will transform the auto insurance experience in 2025 and beyond.
With these tools, insurance companies can streamline the claims process, detect fraud, identify potential risks, monitor driving behavior and more.
- Artificial intelligence can spot patterns in claim submissions and detect manipulated images to identify fraud more effectively.
- Machine learning can access large amounts of data to make more accurate predictions about driver behavior and risk, potentially lowering premiums.
- Telematics devices monitor motorists in real-time, allowing insurers to tailor coverage based on miles traveled and driving habits.
The rise of artificial intelligence in auto insurance
Artificial intelligence refers to a computer system that can mimic human intelligence and reasoning. It can perform complex tasks such as recognizing speech, analyzing images, making decisions or predicting outcomes. AI powers everyday technologies like virtual assistants like Apple’s Siri, recommendation algorithms like those on Netflix and self-driving cars.
Insurance companies have been using artificial intelligence for several years now. What began with simple chatbots answering customer questions has evolved into sophisticated price modeling, risk prediction and streamlined claims processing.
For example, artificial intelligence can assess vehicle damage from a set of images submitted by the driver. It can also help predict the cost of repairs using information from those photos and historical data. This can eliminate the time and expense of having a mechanic assess the vehicle’s condition in person.
Insurance carriers are also using AI to detect insurance fraud. The technology can learn to spot patterns and inconsistencies in claim reporting that could point to illegal practices.
For instance, AI can identify when a customer files a suspiciously large number of claims within a short period of time. It can also analyze photos of vehicle damage to detect digital manipulation, such as altering an image found online and then claiming it as your own.
Machine learning, a subset of AI focusing on algorithms, allows computers to learn from and make data-based decisions, improving their performance without explicit programming. Carriers use it to personalize driver policy recommendations based on their risk profile and behaviors. It can analyze a customer’s driving habits, location and vehicle information and suggest policies that match their unique needs.
According to a 2025 report by ReSource Pro, which studies the insurance technology industry, “The future of insurance will continue to shift away from a one-size-fits-all approach to insurance coverage and toward dynamic, highly personalized solutions,” the report authors note. “These insights will also redefine how we cover difficult exposures such as hurricanes, floods and wildfires.”
Explore the impact of AI on your car insurance premiums
Telematics: How insurers are tracking driving behavior
Telematics is a technology that monitors individual trips, total mileage and behavior behind the wheel. People who demonstrate safe habits or drive infrequently are often rewarded with a reduced premium.
Some of the biggest insurers offer a telematics program, including Progressive’s Snapshot, Allstate’s Drivewise and State Farm’s Drive Safe & Save.
Typically, telematics programs rely on a mobile app or a plug-in device that analyzes a driver’s habits. During each trip, specific metrics are tracked, such as speed, brake force, acceleration, time of day, length of the trip and phone use.
While safe drivers can lock in a reduced premium, unsafe drivers may see an increase in their premium, depending on the program.
Predictive analytics and big data in insurance risk assessment
Predictive analytics involves using statistical techniques, including machine learning and data mining, to analyze current and historical data to predict future events, aiding in forecasting and decision-making processes.
Insurance companies are using predictive analytics and modeling to evaluate driver risk. Insurers can analyze a customer’s driving record and loss history and compare it to that of other drivers to determine how likely they are to file claims in the future. Collecting this data in real-time allows companies to set premiums based on the driver’s behavior and overall risk profile.
Predictive modeling surveys driving patterns and behaviors, so safe drivers should see more affordable premiums, whereas high-risk drivers could be assigned higher rates. This technology enables insurers to adjust rates more accurately at renewal time based on a driver’s most recent history.
Another use case for predictive analytics and big data is fraud identification. Insurers can leverage predictive analytics to flag potentially fraudulent claims. Those flagged claims can then be sent to an adjuster for closer review.
Automation speeds the digital claims handling process
Automation enables insurers to speed up the claim process and improve the customer experience. For example, it allows drivers to file claims through a mobile app by uploading photos of their vehicle’s damage. Once the customer has submitted the photos, AI is used to assess the damage virtually from multiple angles.
The tool can instantly detect the extent of the damage, including scratches, dents and structural damage. Based on the analysis, which is based on vast databases of prior claims and related information, AI and automation can generate an estimated cost of repairs, all without a human.
The impact of connected cars and IoT on insurance
Connected cars and Internet of Things (IoT) technology will significantly impact the entire property and casualty (P&C) industry by 2025.
“IoT devices such as telematics in vehicles, smart home systems and wearables will provide carriers with real-time data that AI solutions can use to analyze risks, offer dynamic pricing, personalize coverage offerings and enhance claims processing,” the ResourcePro authors note in their report.
IoT devices, like telematics plug-ins and mobile apps, are also being used to improve safety. These devices can track and collect information on driver behaviors, which can help insurers identify the riskiest drivers. When drivers enroll in a telematics program, it can also improve their safety behind the wheel, which may reduce claims.
So-called “connected cars” use wireless technology to communicate with other devices and networks inside and outside the vehicle. This enables communication with other devices, vehicles, or infrastructure to provide services like navigation, safety alerts and entertainment.
Connected cars can also transmit driving data to an insurance company, which uses that information to set rates and adjust them regularly.
For example, Tesla owners with insurance through the manufacturer’s in-house carrier receive a Safety Score based on their real-time driving behaviors. They can monitor their performance via the Tesla app and use that information to improve their driving habits. The company offers additional savings of up to 10% for owners who use Tesla’s Full Self-Driving technology.
According to the company website, “your Tesla Insurance premium is based on the Tesla vehicle you drive, your garaging address, amount you drive, your coverage selection and your Tesla vehicle’s monthly Safety Score. As your Safety Score increases, your insurance premium decreases. The safer you drive, the less you pay.”
How technology could lower or increase your insurance premiums
Advanced technologies have the potential to decrease or increase car insurance premiums. For instance, if you’re a safe driver, enrolling in a telematics program could help you lock in a lower rate.
Some insurers use AI to analyze driver records and offer automatic discounts to people with a clean driving record or no recent claims.
On the other hand, certain technologies could increase your premium. If you enroll in a telematics program and don’t drive safely, you might have a higher rate.
Predictive analytics can also help insurers spot high-risk drivers, meaning your premium could be higher based on your rating factors.
The future of auto insurance: What to expect beyond 2025
Experts predict that current and emerging technologies will impact the insurance industry and the consumer experience. The increased adoption of AI and other technology presents both opportunities and challenges.
Rashid Galadanci, CEO and co-founder of Driver Technologies, an AI-based mobility tech company, believes that pay-per-mile and usage-based insurance (UBI) models will become even more popular in 2025.
“As third-party apps become more widespread and more users opt-in to share their driving information, insurance companies will have the opportunity to develop UBI programs centered around connected vehicles,” he says. “Consumers have numerous financial savings options that could come from using connected car information. For instance, good driving behavior could lead to lower insurance premiums or even influence vehicle lease payments if the driver takes better care of the car.”
However, he said privacy concerns will force insurers and technology companies to work hard to ensure consumers’ comfort.
“Insurance companies will be tasked with the challenge of gaining consumer trust to collect driving information to analyze for potentially lower insurance premiums. Due to past incidents, consumers may be skeptical about whether their driving information is being used as promised. To achieve widespread adoption, the industry needs to rebuild this trust,” Galadanci says.
To achieve this, he said, car insurance companies will need to double down on data security and convince customers that their information is secure.
Frequently asked questions
What is telematics and how does it affect insurance rates?
Telematics uses a mobile app or plug-in device to monitor driving habits, such as speed, brake force, mileage, and phone use. Safe drivers who enroll in telematics programs can often get a lower premium. However, drivers who demonstrate unsafe behaviors, like speeding, could see a rate increase.
Can technology help lower my auto insurance premium?
AI and predictive analytics can help reduce auto insurance premiums by identifying driving habits and the likelihood of claims. These technologies help low-risk drivers secure lower premiums.
Are there privacy concerns with using telematics?
Telematics programs use GPS technology to track trips and driving habits. Insurance companies have privacy policies for handling and storing the data so your information remains secure.
What is usage-based insurance and how does it work?
Usage-based insurance (UBI) technology calculates an insurance premium based on your mileage. A mobile device or plug-in device tracks the distance of your trips and charges you a premium based on how far you drive each month, plus a flat monthly fee. It can be a cheaper insurance option than a standard six- or 12-month policy for infrequent drivers.
Conclusion
Insurers and consumers may see improved claim handling and more personalized rates in 2025 thanks to technological advancements in AI.
As a driver, it’s important to stay informed about the future of car insurance technology and how it can impact your policy and premium. If you’re shopping for auto insurance, compare tech-friendly insurers to take advantage of potential discounts and more efficient claim handling.
Sources
- Insurance Information Institute. “Background on: Pay-as-you drive auto insurance (telematics).” Accessed March 2025.
- National Association of Insurance Commissioners. “Artificial intelligence.” Accessed March 2025.
- National Association of Insurance Commissioners. “Telematics in auto insurance.” Accessed March 2025.
- Nationwide Agent Blog. “Predictive analytics in the insurance industry.” Accessed March 2025.
Get advice from an experienced insurance professional. Our experts will help you navigate your insurance questions with clarity and confidence.
Browse all FAQs