Self-driving cars will wipe out insurance segments, but also create new ones

20 June 2017 Consultancy.uk

The projected rise of autonomous vehicles is set to transform the insurance industry. Much has hypothesised about self-driving cars' potential to wipe out a large chunk of the automotive insurance market, yet, at the same time, insurance firms may still come out ahead if they manage to capitalise on new insurance markets which will unfold.

Autonomous vehicles are presented as one of the four biggest trends to affect the automotive industry. Globally, the market is set to reach a value of $42 billion by 2025, according to BCG, with Germany and the US driving ahead in the development and adoption of automated vehicle. The Stevens Institute of Technology estimates that around 23 million fully autonomous vehicles may already be travelling on US highways by 2035. 

One of the industries affected by the change is the insurance industry, largely due to a predicted decrease in the number of accidents as well as a shift in liability to different stakeholders than the current human owners and/or operators. In a new report from Accenture in cooperation with the Stevens Institute of Technology, titled ‘Insuring Autonomous Vehicles’, the firm explores the effect of changes heralded by a possible rise in autonomous vehicles (AV) on the revenues of the insurance industry.

Autonomous vehicle adoption forecast

According to researchers, the number of traditional personal vehicles is set to decrease further in the next 35 years, as personal semi-autonomous vehicles become increasingly prevalent. By around 2025 the first personal fully autonomous vehicles are set to hit the market, with the displacement originally of personal traditional vehicles, the number of fully autonomous vehicles on US roads is set to hit around 50 million by 2050.

Impact of AVs on insurance premiums

The study also found that the long-term picture will see premium losses, the losses are unlikely to begin to overcome premium gains due to rollout of AVs until 2033. The research points to around $15 billion in new AV revenue by 2025 while revenue losses from AV as set to begin in around 2026.

Accumulative premium gains vs. losses

When considering the accumulative effect of premiums raised prior to the start of the in earnest rollout of AVs in around 2026, the research suggests that, in the years to 2050, accumulative premium gains will outstrip accumulative premiums losses by around $81 billion. In total, the research finds that the relative plateau of premium losses at around 2045 will mean that accumulative losses will not surpass accumulative gains until after 2050.

Concluding the report’s findings, the firm wrote, "The threat posed to insurers by the rapid evolution of autonomous vehicles is real, but so is the $81 billion opportunity represented by new forms of insurance."

Opportunity map

The biggest boon to premiums stems from the sale of cybersecurity premiums. The technology used in connected cars will likely be vulnerable to a host of cyberattacks, some of which, such as hijacking or ransomware could do serious damage to the car and property, including passengers, as well as potential software costs – the software is also likely to be proprietary, complex and repair limited to specialists – increasing costs for insurance and the insured.

Accenture believes that the sale of such premiums will be well underway before 2025, with the decline in traditional auto insurance premiums partly offset by increased sale of premiums for cybersecurity insurance. Software/hardware failure premiums and infrastructure premiums, for the wider network required to operate an AV, will create additional costs.

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