The U.S. personal auto insurance sector could shrink by 60 percent within 25 years as autonomous vehicles catch on, vehicles become safer and both trends reduce the number of accidents, KPMG said in a new report.
At the same time, insurers have been quick to respond to anticipated market changes when driverless technology takes hold.
KPMG’s prediction: There could be as much as an 80 percent potential reduction in accident frequency by 2040 if auto and safety trends continue. If this happens, loss costs and premiums could drop drastically, though accident expense could hit $35,000 on average, up from $14,000 now.
If the market shrinks, then consolidation and more competition would follow, KPMG said.
“The risk profiles of vehicles is changing daily, and the subsequent drop in industry loss costs would reduce the size of the auto insurance market, trigger consolidation in the personal lines space, attract new competitors, and force dramatic operational changes within carriers,” Jerry Albright, principal in KPMG’s Actuarial and Insurance Risk practice, said in prepared remarks.
KPMG, based on a survey of insurance company senior executives for this report, found an industry skeptical that such a transformation would happen anytime soon. The firm noted that few carriers have taken action to develop policies that would address the autonomous vehicle landscape, because “most believe the change will happen far into the future, if at all.”
Most respondents, for example, said they don’t expect driverless technology to have a major impact on their business over the next decade Nearly half, however, said they see it having an impact 11 or more years into the future.
“This point stands in contrast with the pace of change we anticipate,” KPMG said in the report.
KPMG identified eight elements it said could propel the shift to autonomous vehicles, and the resulting change in the personal auto insurance sector:
If these eight elements can be realized, KPMG said that it envisions four potential phases taking place that would ramp up widespread, and broader adoption of autonomous vehicles. They are:
Training wheels, or the introduction to driverless vehicles as manufactures roll out some of the early versions and underlying technology. High-tech companies, meanwhile, are showing interest in fast-tracking production of fully autonomous vehicles.
First gear. Partial autonomous driver technology could come out by 2017, allowing a wide range of consumers to experience the technology and see how safe and reliable it can be, shifting market perceptions. Regulatory standards for vehicle-to-vehicle communications will follow.
Acceleration. KPMG said that fully autonomous vehicles could become more common within five years, with technology enabling the likely embedding of vehicle to vehicle communications in all new vehicles. Wider scale of this technology would drive down costs and make it more widely available.
Full speed, with a broad use of autonomous driving technology hitting by 2025. At this point, all new vehicles could have autonomous driving capabilities, with existing vehicles getting retrofitted. Through the next 15 years after that, the autonomous driving landscape could become more sophisticated, with integrated autonomous driving, where vehicles can also communicate with each other. If this can be achieved, KPMG said it sees “a new normal” hitting by 2040.
The KPMG report is called “Marketplace of Change: Automobile Insurance in the Era of Autonomous Vehicles.”