Autonomous vehicles once seemed to pose an existential threat to auto insurers. Now, they present opportunities to adapt.
Predictions that driverless cars and other autonomous vehicles heralded the end of the auto insurance industry may have been a bit premature, according to new analysis from Bloomberg New Energy Finance. While previous forecasts projected a serious contraction across the board, the Bloomberg report concludes that auto insurers should — and will — develop new products to cover the risks posed by driverless cars.
Last year, KPMG estimated autonomous vehicles could trim $137 billion, or 71%, from the auto insurance industry. Bloomberg analysts disagreed, arguing that the auto insurance sector has an opportunity to compensate for lost revenues by offering new policies such as liability insurance for driverless car manufacturers and the tech companies that develop “smart” systems.
Although driverless cars have yet to account for a majority of vehicles on U.S. roads, insurers have begun to prepare for the wide-ranging changes they’ll bring to the industry. For insurers that invest in new product lines now, driverless cars will be less of a disruptive force and more of an exciting new opportunity.
New Underwriting Model
Perhaps the most important transition auto insurers must make is how they underwrite driverless cars. Auto insurers will need to shift to a new underwriting model based on the potential liability for manufacturers if systems they’ve built — rather than individual drivers — fail and cause a collision. KPMG predicts nearly 60% of all auto losses will be covered by product liability insurance by 2050, compared to 22% by personal auto insurance.
Several early manufacturers of autonomous cars have acknowledged fault in recent accidents, and Tesla now offers insurance to its buyers. It’s far from certain, however, if more automakers will insure their driverless cars. They’ll probably wait and see how cases involving both driverless cars and cars driven by real people are settled before they accept liability — and that leaves an opening for insurers.
Further, the interconnected devices that make driverless cars possible may be vulnerable to hacking. To cover that risk, insurers can provide owners with cyber insurance in the event malicious activity causes a collision. Indeed, a recent study by Accenture and Stevens Institute of Technology estimated insurers could reap $81 billion by 2025 by covering risks associated with product liability, cyber crime, and the operation of public infrastructure for driverless cars.
Driverless Car Numbers Will Grow
While it may be decades before driverless cars become the norm, many of today’s cars currently feature advanced systems, such as those that alert drivers to potential collisions. This allows insurers to begin collecting data on how semi-autonomous vehicles perform on the road — information that could become useful in underwriting risks for driverless cars.
That database will grow as the number of semi-autonomous cars swell. Tech research firm ABI Research recently predicted that 8 million consumer cars with what it termed level 3 and 4 technologies will move off the assembly line in 2025. A car equipped with level 3 and 4 tech systems would still need a driver, but they do have the ability to switch control over to the driverless program under certain circumstances.
For insurers, autonomous vehicles represent new opportunities to devise innovative risk-mitigation products. Rather than view emerging technology as a threat, industry professionals can adapt and thrive as driverless cars come to scale.