Automobile insurance in the era of autonomous vehicles – KPMG
Article Synopsis :
The conversion to autonomous vehicles will change the amount, type, and purchase of automobile insurance. How fast, and to what extent, will the changes occur?
“Automobile insurance in the era of autonomous vehicles” by KPMG summarises survey findings collected from senior insurance industry executives whose companies in aggregate account for almost $85 billion in private and commercial auto premium, in other words leaders at the front line of change. Results are grouped in five sections:
- Market adoption
- Industry impact
- Industry transformation
- Firm preparation
- Survey participants
KPMG identifies eight core elements impacting the velocity and magnitude of transformation. Each element on its own carries industry implications; taken together they add up to a new normal across the automobile sector:
- Integrity of technology
- Capability accessibility
- Infrastructure availability
- Regulatory permission
- Legal responsibility
- Mobility services
- Data management
- Consumer adoption
Key findings, summarized below, and detailed in the report, include:
- Timing: Nothing significant any time soon
The majority of respondents anticipate no significant change to the market for at least another decade. As a result, most insurers do not plan to address this issue as it relates directly to their business in the near term (next 12–18 months).
- Topical knowledge: Mixed levels of insight
Only 29% feel ‘very knowledgeable’ about autonomous vehicles, while another 23% profess little or no knowledge on the topic.
- Preparation: No need to start now
Though many respondents have held preliminary discussions about the eventual effect autonomous vehicles will have on their business, few have taken material action. 74% of respondents are not prepared for the change.
- New products and competitors: New opportunities and entrants
Respondents see opportunities to develop different products to cover autonomous vehicles, but also new competitors entering the industry. Auto manufacturers, data, and technology companies are seen as most likely to enter the market.
- Early adopters: Young drivers pave the way
Respondents see younger drivers (aged 15–44) leading the adoption, with males and females moving at equal rates.
- Shifts in the insurance landscape: Major changes could follow
Autonomous vehicles will significantly decrease claims frequency, which will result in premium shrinkage. Replacement costs will increase due to more expensive components. Respondents seem unsure about how, or if, the mix of insurance will change.
- Legal and regulatory issues: Big hurdles yet to jump
Respondents expect legal and regulatory issues to play a significant role in the adoption and implementation process. They believe regulators will impede initial adoption, opening up as autonomous vehicles go mainstream. The legal system will have to adjust to new definitions of ‘car’ and ‘driver’ in the determination of fault.
- Business operations: Everything could change
Respondents anticipate major operational changes in at least underwriting, product management, and claims, with underwriting hardest hit, potentially requiring a complete overhaul.
KPMG advises insurers work on the following combination of strategic and tactical activities:
- Understand your company’s exposure to the change
- Evaluate your business strategy
- Identify and monitor leading indicators
- Prepare your operations
- Understand cost structures
- Educate and train your people
- Align with other insurers and form partnerships
KPMG’s analysis makes increasingly clear the automobile landscape is poised for radical change. The convergence of consumer and automotive technologies along with the rise of mobility services will transform the way we drive, commute, and insure – sooner than most expect.
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Digital Insurer's CommentsTechnology enablement, consumer adoption, and regulatory permission . . . the core ingredients are aligning to enable mass change starting in a decade.
A continual decline in the frequency of accidents will drive a drop in industry loss costs and subsequently premium. KPMG’s models suggest a scenario in which the personal auto insurance sector shrinks to less than 40% of its current size within 25 years. In the U.S. alone that equates to about $120 billion in premium gone, wiped out. Talk about disruption.
But what digital takes, it also gives. Who knows what the next 25 years hold beyond autonomous cars. As assets digitize so will opportunities for new forms of insurance. Digitally-minded insurers, investing to prevail in traditional lines of coverage, are also indirectly equipping themselves to see entirely new opportunities as they arise. Digital insurance isn’t as much about technology as it is point of view.
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