How will self-driving cars affect the insurance industry?

As we all know autonomous cars will arrive in the next 10-20 years (if you don’t have a read of my previous post here. The effects on you or I will be extraordinary and the affect on businesses in all industries will profound with one in particular – the insurance industry.
A recent KPMG study [1] found that the majority of insurance companies thought that autonomous cars were too far in the future for them to worry about now. This I think is a major error on the part of the insurance companies. There’s likely to be two paths to autonomous cars with the regular manufacturers such as BMW, Audi, Ford, etc slowly introducing self-driving tech in to their vehicles over the next 20 years or so while high tech companies such as Google, Apple and Tesla will completely leap frog the regular human-driven car and go straight to autonomous vehicles in the next 10 years (I know Tesla makes regular vehicles but their autonomous driving tech is well ahead of others). What this means is that insurance companies are likely to be taken by surprise sooner rather than later as consumers start wanting/needing insurance products that they don’t yet offer for vehicles from these high-tech companies. The advance of autonomous vehicles from regular manufactures will also creep up on them just as the continual advance of mobile has snuck up on so many industries such as retail.
There’s currently around an 85:15 split between personal and commercial insurance [2] across the industry but as mobility on demand increases, spurred on by the introduction of autonomous cars, insurance companies will need to refocus their products to the commercial side. The ‘uberisation’ of autonomous cars will remove the need for the majority of personal car insurance policies. As an aside and in the shorter term though is the increase in car sharing services such as BlaBlaCar – I’m yet to see insurance policies specifically designed for people that regularly use these services.
Data is already prolific in our lives but one aspect that its yet to really arrive in is our cars and particularly our car insurance. While there’s a few companies offering black box policies they’re few and far between and mainly aimed at new young drivers. With the increase in data in our cars there’ll be a huge shift to data based insurance policies but one has to question how many insurers are ready for this change, how many have a data analysis skill set, do they have the processing, storage and security requirements – I suspect not.
One of the major reasons for the introduction of autonomous cars is to increase safety. Today, around 94% of crashes are caused by human error (the rest a mix of component failure and environmental factors) [3] so with the introduction of autonomous cars will inevitably come a huge reduction in crashes and therefore insurance claims. This you’d think would be good news for the insurance industry but consumer demand and competition in the industry will most definitely lead to much lower premiums. In addition to this there’ll be much fewer cars being purchased and therefore fewer policies. With the huge advancements in technology and the naivety of the current industry players there’s bound to be start-ups offering insurance products that people want – I could quite easily see black boxes in cars with dynamic pricing based on how much you use the autonomous features, if you drive manually then you pay more (this goes back to the previous paragraph). You could also see manufacturers themselves offering this insurance as part of the vehicle cost (remember that we’re unlikely to own cars in the future but rent them per thousand/miles).
The aggregate of all of this could spell bad news for many of the big players – who will be the Blackberry and Nokia of the insurance industry?
[1] Automobile Insurance in the era of autonomous vehicles. Survey results. June 2015. KPMG.
[2] UK Insurance Key Facts 2013. Association of British Insurers.
[3] Traffic Safety Facts. Crash Stats. February 2015. National Highway Traffic Safety Administration.
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