Insurance industry faces radical restructuring due to autonomous cars

The motor insurance industry faces radical restructuring as a result of the advent of autonomous cars.

A research report released by Swiss Re and HERE in April, called ‘The Future of Motor Insurance’, calculated that autonomous driving (AD) technologies, such as lane departure warning, blind-spot assist and aids to improve night vision, could potentially wipe $20-billion off global insurance premiums by 2020 alone.

“This reduction would be greater were it not for global car sales growth, fuelled by growth in emerging Asia – in China and India particularly – which will become the largest markets for motor insurance in 2025 in terms of volume,” states the report.

At present, vehicle insurance generates 42% ($700-billion) of all non-life gross premiums of the total property and casualty insurance market, it continues.

In developing markets this is 58%, or $200-billion, and in developed markets 38%, or $500-billion.

Swedish manufacturer Volvo Cars believes the insurance industry will have no choice but to react to these seismic challenges to its existing business model.

“The medium-to-long-term impact on the insurance industry is likely to be significant. But let us not forget the real reason for this – fewer accidents, fewer injuries, fewer fatalities,” Håkan Samuelsson, president and chief executive at Volvo Cars told a seminar held in May in London, titled 'A Future with Autonomous Driving Cars – Implications for the Insurance Industry’.

AD technology is the single most important advance in automotive safety to be seen in recent years, he said.

“Vehicle manufacturers are predicting that highly autonomous vehicles, capable of allowing the driver to drop out of the loop for certain sections of their journey, will be available from around 2021,” added Thatcham Research CE Peter Shaw.

“Without doubt, crash frequency will also dramatically reduce. We have already seen this with the adoption of autonomous emergency braking on many new cars.

“Research in the US predicts that by 2035, as a result of autonomous and connected cars, crashes will be reduced by 80%. Additionally, if a crash cannot be avoided, then the impact speed will also drop as a result of the system’s performance – reducing the severity of the crash.”

Volvo Cars announced in April that it will start an extensive AD trial in the UK in 2017, with up to 100 AD cars being driven on real roads by real people, as part of its global push to develop AD cars, with similar programmes to be run in Sweden and China.

AD Business Opportunities for Insurers
According to ‘The Future of Motor Insurance’ report, more than 40% of accidents in the UK from 2013 to 2015 could be attributed to the driver’s failure to look properly – one of the main targets of AD technologies.

The report quotes a recent survey, which indicates that 45% of insurance executives expect premiums on personal auto insurance to reduce as driverless vehicles enter the marketplace.

The report also notes that the biggest opportunity for insurers related to car connectivity lies with usage-based insurance.

“Products based on how often, where and how people drive enable insurers to price the risks more accurately, which can result in lower premiums for the insured taking less risk.

“The demand for insurance policies based on vehicle-based telematics has been growing and we expect the variety of policies available to increase.”

The opportunity for insurers also extends beyond the vehicle.

“By combining vehicle data with information from other sources, such as smartphones or public transit systems, an insurer could build a more complete picture of a driver’s usage of mobility services, irrespective of the type of transportation they use. This paves the way for insurers to develop new types of policies that insure a user for their broader mobility and not just driving.”

* HERE is a location cloud company that enables real-time location applications and experiences for consumers, vehicles, enterprises and governments. It is backed by a consortium consisting of Audi, BMW and Daimler. Swiss Re is an insurance group.