Autonomous vehicle technology could shrink the auto insurance sector by 71% or $137 billion by 2050, according to new research by KPMG.
KPMG has extended its actuarial model by 10 years to 2050, finding that the pace of change has accelerated, pushing projections that illustrate greater declines to the insurance sector than KPMG's previous 2015 study.
|Triple threat
Here are the dominant forces disrupting the auto insurance industry outlined in KPMG's new report, "The Chaotic Middle: The Autonomous Vehicle and Disruption in Automobile Insurance":
— Autonomous technology is making cars increasingly safer, leading to a potential 90% reduction in accident frequency by 2050.
— The rapid adoption of mobility-on-demand is quickly translating into the need for less personal auto coverage, with the use of fleets requiring commercial auto insurance.
— Auto manufacturers will assume more of the driving risk and associated liability, and have new opportunities to provide insurance to car buyers, taking market share away from traditional insurers.
KPMG estimates that by 2050 there will be a significant increase in product liability insurance, to 57% of total auto losses, in order to cover the autonomous technology in vehicles, and a considerable decrease in personal auto insurance to 22% of total auto losses.
"Insurance companies will have to make important strategic and tactical changes sooner than anticipated to navigate through this turbulent transformation of the industry," said Jerry Albright, principal in KPMG's Actuarial and Insurance Risk practice. "New business models bring about a decade or so of a 'chaotic middle' as insurers adjust their strategies and operations as autonomous vehicle technologies significantly deplete the need for personal auto insurance."
Related: Insuring autonomous vehicles
|Mixed forecast
By 2024, the majority of travel within cities and surrounding suburbs is expected to be on-demand rather than with a personal vehicle, and by 2035, it is expected to be the new normal in transportation.
As a result, product liability coverage and other new types of insurance are expected to pay a greater share of claims resulting from roadway accidents. Cyber crime is one example of a new type of risk associated with the era of driverless cars. It follows that market participants are building new projects to cover the potential hacking of autonomous vehicles.
"Insurance companies are varied in their level of preparedness for this disruption and many have taken limited action to face this challenge," said Joe Schneider, managing director at KPMG Corporate Finance LLC. "As a result, auto insurers may choose to branch out into home-related products, or other commercial coverage, to benefit from diversification."
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Denny Jacob
Denny Jacob is an associate editor for NU PropertyCasualty360. Contact him at [email protected].
