Insurers Unprepared for Autonomous Vehicles

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The vast majority of insurers believe the impact of autonomous vehicles is too far away to begin preparing for, according to “Automobile Insurance in the Era of Autonomous Vehicles,” a survey conducted by KPMG LLP, an audit, tax and advisory services firm. 

KPMG found skepticism about the potential transformation autonomous vehicles will bring in the near-term because most insurers believe the changes are 10 years away, or more. Eighty-four percent of surveyed executives said autonomous vehicles wont have a significant impact on their businesses until 2025; 42 percent expect some impact in six-to-10 years. Seventy-four percent said they are unprepared for autonomous vehicles today; and 55 percent said regulators will impede the adoption of autonomous vehicles, which could explain why insurers downplay the more-immediate impact on their business.

“The disruption of autonomous vehicles to the entire automotive ecosystem will be profound, and the change will happen faster than most in the insurance industry think,” said Jerry Albright, principal in KPMG’s actuarial and insurance risk practice.  “Technology is making cars safer, impacting underwriting practices, claim frequency and severity as well as auto premiums. To remain relevant in the future, insurers must evaluate their exposure and make necessary adjustments to their business models, corporate strategy, and operations.”

Most respondents are in the ‘discussion phase,’ according to the survey, or have done no preparation despite acknowledging an expected decline in claim frequency and premium per policy. And yet, 29 percent said they feel ‘very knowledgeable’ about autonomous vehicles, and 10 percent have developed a strategic plan to deal with their impact. 

Insurers ranked the following areas as most likely to be affected:

  • Underwriting: 61 percent. In addition, 94 percent said “understanding the underwriting impact” of autonomous vehicles was the most critical area of focus, as many expect they would have to decrease the premiums.
  • Product management: 52 percent
  • Claims: 52 percent

“As the trend towards car-sharing proliferates and mobility-on-demand companies like Uber and Lyft become more popular, commercial lines likely will take a larger share of the automobile insurance pie,” said Alex Bell, a managing director in KPMG’s CIO Advisory practice. “The share of the personal auto insurance sector will likely continue to shrink as the potential liability of the software developer and manufacturer increases.  At the same time, losses covered by products liability policies are likely to increase given that the sophisticated technology that underpins autonomous vehicles will also need to be insured.”
Asked what components of personal and commercial auto coverage would change the most in an autonomous vehicle landscape, executives said:

  • Liability: 94 percent
  • Property damage: 52 percent
  • Medical/PIP: 29 percent
  • 71 percent believe the cost of vehicle parts replacement will be more expensive

Autonomous vehicles will force the insurance ecosystem to evolve, and participants anticipate the emergence of niche writers (42 percent) and new providers (39 percent). The major providers of vehicle insurance in the future, participants said, are likely to include: original equipment manufacturers (58 percent); start-up companies (45 percent); established technology firms (39 percent); and investment firms (32 percent). Insurers also anticipate increased consolidation among the traditional writers.
“The potential reduction in car ownership and decreased demand for personal auto insurance could lead to financial stress for less-diversified carriers, triggering consolidation in the insurance industry,” said Joe Schneider, a director at KPMG Corporate Finance LLC. “Assuming consumers demand lower premiums to reflect fewer accidents, there is the possibility of frenzied competition as firms attempt to maintain premium volume to cover operational expenses and market share.  This irrational pricing behavior could result in a dangerous downward underwriting spiral for the broader industry.”

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