Ever since autonomous vehicles entered the cultural zeitgeist, the concern from many insurers has been that this new technology will reduce or eliminate the auto insurance industry as a whole.
But a new study claims that self-driving cars may actually grow the industry by creating $81 billion in new revenue between 2020 and 2025.
Autonomous vehicles will lead to a decrease in individual insurance premiums, but that decrease will be offset by new categories of car insurance related to cyber security, product liability, and infrastructure insurance, according to a recent study from Accenture and Stevens Institute of Technology. Cyber security and product liability will represent the largest sources of revenue — $12 billion and $2.5 billion, respectively, by 2025.
Autonomous vehicles are also likely to be owned by OEMs and service providers — such as rideshare companies — causing the number of individual policies to decline, according to the study. However, some insurance experts are skeptical about the significance of the study.
“While broad predictions and strategic considerations concerning the future of automated vehicles are interesting, the immediate need is for a multidisciplinary partnership to better understand the technological foundations and the financial and risk implications,” Rick Gorvett, staff actuary at the Casualty Actuarial Society, told Mobility Finance.
Too many activities and discussions are occurring in silos, Gorvett added. There needs to be more multidisciplinary partnerships, and studies need to be conducted between actuaries, OEMs, insurers, policymakers, and more, he said.
Meanwhile, whether individual insurance premiums will actually decrease — and whether ownership will be maintained by OEMs — are other points drawing skepticism.
Because the cost of a vehicle is rising, and the contents and technology of autonomous vehicles are expensive, any crash would result in more financial damage, James Lynch, an actuary with the Insurance Information Institute, told Mobility Finance. This means that premiums are likely to stay high, even if crashes themselves decrease.
“Right now, premiums are rising in automobile insurance; for a while accident rates had been increasing, but recently the size of the claims have been growing, so premiums have been going up [in response],” Lynch said.
However, this type of insurance may shift from personal auto insurance to product liability insurance, he added.
The study also noted that individual policies may decrease as OEMs and rideshare companies maintain fleet ownership. But it’s unlikely OEMs will own the autonomous vehicles for two reasons, Lynch said, the first reason being a financial balance sheet issue.
An automobile goes down in value the longer it is owned, he said. In the case of self-driving cars, if an automaker produces one that reduces accidents by 50%, for example, and then a competitor comes out with one that reduces accidents by 75%, suddenly the first automaker has a severely depreciated asset, Lynch explained. This makes maintaining ownership a financial liability in itself. “I don’t think that’s a business model that automakers will be too happy with,” he added.
The second reason is that people like to own things, Lynch said. Even if an autonomous car is expensive, it won’t mean that people will rent or subscribe to them; instead, it just means people will likely stick with their cheaper, non-automated vehicles, he added.1 - Reader Likes This Post