Existential crisis for the multibillion-dollar car insurance industry

Without humans to cause accidents, 90% of risk is removed. Insurers are scrambling to prepare. Self-Driving Cars might kill auto insurance as we know it.

Existential crisis for the multibillion-dollar car insurance industry

By Paul Tullis (Bloomberg)

…If nobody’s driving, why do we need auto insurance? Premiums—and company revenue—are based on a driver’s likelihood of being in an accident, as well as actual crash rates. With more than 90 percent of accidents caused by human error, taking the driver out of the equation is going to mean big changes for insurers.

“This comes up in every strategic conversation,” said Michelle Krause, senior managing director in Accenture’s insurance client service group. The major carriers “are very focused on understanding the technology behind [automation] and what opportunities are available for them.”

Krause’s group, with research from the Stevens Institute of Technology in New Jersey, published a report in 2017 forecasting trouble for insurers as automation becomes more widespread. Premiums could drop by 12.5 percent of the total market by 2035, the authors found, and while new insurance product lines centered on autonomous vehicles will offset some of the loss, declining premium revenue will eventually outpace gains.

The good news for the industry is that it has time. Stevens estimates that by 2035 there will be only 23 million autonomous vehicles on American roads—less than 10 percent of today’s total. And as of now the technology required for autonomous features is extremely expensive to repair, meaning premiums will initially rise as more cars featuring them roll off dealers’ lots.

Read more: Self-Driving Cars Might Kill Auto Insurance as We Know It

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