$81bn new biz from autonomous vehicles to offset motor premium decline: study

Insurers worry that the introduction of self-driving cars will shrink auto insurance premiums, but these decreases may be offset by an annual $15 billion additional business from new insurance product lines centred upon autonomous vehicles, according to a US study by Accenture.

By 2026, insurers will begin to see auto insurance premiums drop due to the rollout of autonomous vehicles; by 2035, the reduction could be as much as $25 billion, or 12.5 percent of the total US market, according to the study named “Insuring Autonomous Vehicles Opportunity Between Now And 2025”.

However, models designed by Accenture in collaboration with Stevens Institute indicate that these decreases will be offset by new insurance product lines centred upon autonomous vehicles. These new revenues could be in the range of $15 billion annually by the year 2025 and as much as $23 billion in 2035, although by 2033 lost premium revenues will begin to outweigh the gains from new insurance product lines.

The cumulative value of potential new revenues could total as much as $81 billion by 2025.

To seize this opportunity, insurers will need to quickly change and adapt their business models, according to Accenture.

The largest opportunities by 2025 will be in cyber security ($12 billion) and product liability ($2.5 billion), the study says.

The opportunities here include protecting against vehicle theft, unauthorized vehicle entry, and the use of “ransomware” to hold vehicles hostage until payments are made to unlock software controls.

Insurers will also be writing policies to protect against criminal or terrorist hijacking of vehicle controls through hacking. And, with many cars serving as connected devices, insurers will offer protection against identity theft, privacy invasion, and the theft or misuse of personal information.

Insurers will also write policies to cover manufacturers’ liability for communication or internet connection failure as well as for the potential failure of software – including software bugs, memory overflow, and algorithm defects – and hardware failures such as sensory circuit failure, camera vision loss, and radar and lidar (light detection and ranging) failures. Liability coverage will be needed not only by original equipment manufacturers (OEMs) but by their suppliers as well.

The shift to autonomous vehicles will cause dramatic changes in how insurance premiums are generated. With most autonomous vehicles likely to be owned by OEMs and service providers such as ride-sharing companies, the number of individual policies will decline, along with revenues from premiums generated by these policies.

And, since autonomous vehicles will be considerably safer than vehicles driven by humans, there will be fewer road accidents, leading to reduced pricing for insurance policies. While insurers of autonomous vehicles will make fewer payouts for claims, this will not compensate them for lost policy revenues.

Early mover advantage is particularly important in light of the blurring of industry boundaries. Automakers are experimenting with packages that offer insurance as well as maintenance services to prospective buyers, potentially taking market share from traditional industry players. While the OEMs are acting as an insurance distribution channel, the actual policies are written by insurance companies working in partnership with the OEMs. Autonomous vehicles and related technologies such as vehicle telematics will generate vast quantities of proprietary driver data.

As OEMs and technology companies explore the vehicle insurance market, they will also be looking for opportunities to control and monetize this data in the development of analytics and highly personalized offerings made directly to customers through built-in vehicle communications channels.

Early mover advantage will go to insurers getting a jump on actuarial modeling, the development of new product offerings, the creation of new distribution channels and the formation of partnerships with new premium payers – all critical elements of success, according to Accenture.