A white paper released by consulting firm KPMG predicts big savings for car owners when autonomous cars are mainstays on American roads. In equal turn, the white paper projects big headaches for insurance companies. As accident rates plummet, the personal car insurance business could shrink by more than 60 percent from its current size. "The elimination of excess underwriting capacity could bring severe market issues," KPMG said. "Our belief is that the disruption to insurance carriers will be profound, with a select set of winners and a broad set of losers."
The findings are noteworthy because the insurance industry's role in a self-driving car era has been a big question mark, both in how liability for autonomous accidents is determined and how the industry adjusts to an upended business model. Sixty-eight percent of insurance executives polled by the firm believe the legal system will largely sort out those questions – but KPMG says those executives are going to be caught flat-footed in the interim by a transformation that's quickly approaching.
Early-adopting consumers will accelerate their purchases of cars with preliminary autonomous features as early as 2017 and the impact will be felt in the insurance company. Already, front-end accidents have dropped 7 to 15 percent in vehicles equipped with collision-avoidance systems, according to Insurance Institute for Highway Safety statistics. That trend will continue.
Over the next 25 years, there will be an 80 percent reduction in accident frequency, resulting in a mere 0.009 incidents per vehicle on an annual basis, KPMG projects. That will result in a "new normal" in the insurance industry that will arrive sooner than many anticipate.
The paper's authors project all new cars sold will be autonomous within the next 10 years. In one of the more interesting findings, they also report that non-autonomous cars will be capable of being retrofitted with autonomous features by 2025. A quick fleet conversion would seem to allay at least a few of the concerns some transportation officials have about how autonomous cars interact with human-controlled ones on US roads.
As vehicles make more decisions, the potential liability of software developers and manufacturers will increase. That's a potential area of growth insurance companies. Commercial fleet companies, in particular, may need new types of coverage. But overall, KPMG says loss costs will drop from approximately $120 billion per year today to less than $50 billion per year by 2040. Those savings will be passed along to consumers.
"It would be naïve to think that premiums will stay the same while losses drop," the paper said.