FutureStructure

Driver Assistance, Autonomous Vehicles Could Kill 60 Percent of Personal Auto Insurance Market

Safer roads mean fewer accidents, fewer accidents means lower premiums.

by / October 23, 2015

Should driver-assistance technology and self-driving vehicles make roads safer, as many believe they will, it could wipe out the majority of the $125-billion-a-year personal auto insurance industry, according to a new report.

KPMG, an international audit, tax and advisory services firm, projected in a report this month that increasingly safe cars could mean the elimination of 80 percent of accidents by 2040, which would translate into a 60 percent reduction in the amount of money insurers dish out to pay for those crashes.

The report stressed that it’s not just fully autonomous vehicles that will make a dent in the crash rate — it’s existing technology as well. Tesla Motors has already upgraded its newer Model S cars so they can maintain lanes, change lanes and parallel park without the driver’s hands on the wheel. Several car companies have introduced sensors that alert the driver when a vehicle is in their blind spot.

There might be an increase in the dollar value involved in each crash if the requisite technology that makes cars safer drives up vehicles’ worth. The company estimated that accident expenses could rise from $14,000 to $35,000 by 2040, but conceded that such an increase might not happen at all.

“There is some debate about how expensive the future vehicles may actually be,” the report reads. “An alternative view is that vehicles — or at least a large subset — become more like ‘transportation pods,’ which are inexpensive, basic vehicles used to move people in urban settings. Such a scenario could flatten or reduce severity.”

The rise of the driverless car could also mean a shift from personal car insurance to commercial fleet insurance, KPMG suggests in the report. If commuters opted to stick with only one vehicle per household and began summoning self-driving cars operated by private companies, it could mean a new market for insurers looking to underwrite that fleet’s risk.

While personal auto insurance is currently about 87 percent of the market, the report estimates that it will make up only 58 percent by 2040. Meanwhile, KPMG projects that commercial auto insurance would rise from 13 percent to 28 percent. Product liability insurance, currently absent from the auto insurance sphere, would grow to represent 14 percent of the market.

A lingering unknown in the conversation about auto insurance is who will be responsible when self-driving cars do crash. Volvo, which plans on putting 100 autonomous vehicles on the roads of Gothenburg, Sweden, in 2017, has publicly stated that it will assume legal responsibility for any accidents those vehicles get into. However, Tesla founder Elon Musk has told owners of the Model S that they are still responsible for accidents that happen while the car is in autopilot mode.

Another big shift looming above the auto industry is the advent of vehicle-to-vehicle and vehicle-to-infrastructure connections. The U.S. Department of Transportation has already announced that it wants to begin the process this year of writing regulations to require all new vehicles to have the ability to connect to each other, as well as to infrastructure like traffic lights and sensors. With that kind of networking ability, cars would have better knowledge of where other cars are and could assist drivers in some of the most dangerous parts of driving such as making left turns and traversing intersections.

Ultimately, KPMG is confident that car crashes will remain a risk that insurance companies need to underwrite — it’s just that the industry will look vastly different by 2040.

“Of course, accidents will never completely go away,” the report reads. “Our models recognize this fact. Weather, road conditions, wayward animals and technology failures will cause problems. Perhaps most importantly, we also expect that drivers will have the option to flip off the technology at times and drive manually instead. Interestingly, the level of self-driving may well become a core dimension of driving risk. Still, as better and faster driving decisions are made by the vehicle rather than by a human, the frequency of accidents is expected to decline.”