The emergence of #autonomous vehicles, including trucks, in the years ahead will upend the automobile insurance industry, eliminating traditional markets and ushering in vastly new tech-oriented ones.
The reasons? Autonomous-vehicle technology will sharply reduce traditional personal auto insurance markets, on account of improved road safety with the near elimination of human error as a factor – the most frequent cause of vehicular accidents — while generating new insurance markets to address malicious third-party, software, hardware and infrastructure risk.
Professional services company and auditor KPMG said in an October 2015 While Paper: “The conversion to autonomous vehicles could bring about the most significant change to the automobile insurance industry since its inception…The disruption to insurers could be profound, with a select set of winners and a broader swath of potential losers.
“A continual decline in the frequency of accidents should drive a drop in industry loss costs, with a precipitous fall starting in a decade as the vehicle stock converts. The mix of insurance will also change, as commercial and products liability lines expand. Within 25 years, our models suggest a scenario where the personal auto insurance sector could shrink to 40 percent of current size,” the KPMG report said.
While the new technology poses significant revenue reduction risks to insurers, there may also be near-term opportunities, according to a May 2017 report by professional services company Accenture and Stevens Institute of Technology.
Insurance coverage for autonomous vehicles is expected bring US$81 billion in new premiums to the U.S. auto insurance industry over the next eight years, driven by risks related to #cybersecurity, software and hardware and by the need for additional public infrastructure coverage, said the report.
“Insurers are bracing for long-term declines in auto premiums as new and safer autonomous vehicles gain adoption,” said John Cusano, a senior managing director at Accenture and global head of the company’s Insurance practice, said in a news release. “However, our research suggests that auto premiums will increase before they decline on this trend, so insurers that can navigate the changing technology environment could win market share.”
Here are the three new insurance market opportunities in detail:
- #Cybersecurity: Protection against remote vehicle theft, unauthorized entry, ransomware and hijacking of vehicle controls, as well as coverage for identity theft, privacy breaches and the theft or misuse of personal data.
- Product liability for sensors and #software algorithms: Manufacturer coverage for failures related to communications (e.g., internet connection), software (including bugs, memory overflow and program defects) and hardware (sensory circuit failure, camera vision loss, and Radar and Light Detection and Ranging (LIDAR) failures. LIDAR is a remote sensing method that uses light in the form of a pulsed laser to measure variable distances).
- #Public infrastructure: Insurance for #cloud server systems that manage traffic and road networks, in addition to failure of external sensors and signals; and communication problems originating at the system level.
The Accenture/Stevens Institute of Technology research found that cybersecurity insurance would be the greatest potential driver of new premiums, totaling US$64 billion by 2025, followed by-product liability insurance (US$14 billion) and public infrastructure insurance (US$3 billion).
The Insurance Institute of Canada (IIC), in a 2016 report cited the following challenges insurers will face with autonomous vehicles:
- Will vehicles have on-board devices to identify whether or not the vehicle’s technology was engaged at the time of a collision?
- Will insurance companies be allowed to access this information?
- How will insurance companies recover costs when automakers are found to be at fault?
- How can property and casualty insurers reduce their risk of loss?
- How should costs be shared when driver errors and vehicle automation systems failure both contribute to a collision?
While the frequency of collisions resulting in serious injuries and vehicle damage is expected to decline for new, semi-automated and self-driving vehicles, the IIC said there will be higher expected repair costs for vehicles that experience collisions.
“As a result, the impact of vehicle automation on insurance claims costs and industry revenues will only begin to emerge over the next 10 years. It is important for the insurance industry to begin now to prepare for the extensive changes automated vehicles are expected to ultimately bring for the industry.”
Indeed, time is of the essence for insurers — vast changes to the sector are on the horizon, and only insurers that respond quickly and comprehensively to the challenges and opportunities posed by autonomous vehicles will be the ones that survive.