The chaotic middle: The autonomous vehicle and disruption in automobile insurance

Article Synopsis :

“The chaotic middle: The autonomous vehicle and disruption in automobile insurance”, from KPMG’s insurance task force, suggests we’re entering a period of perhaps radical change, promising to reshape the insurance landscape. The report covers four underlying themes:

Self-driving cars put as much as $137 billion in auto premiums at risk 

Pace of change – acceleration on the move

The pace of change has been faster than anticipated. The foundation has been set. Insurance is already being affected.

The triad of disruption – aligning of forces

Three forces are aligning to disrupt personal and commercial auto insurance markets. 1) Autonomous technologies will significantly reduce accident frequency, 2) Auto manufacturers can leverage growing digital capabilities and customer data to displace carriers, and 3) Mobility-on-demand and car-sharing create new business models devaluing individual auto ownership.

Perfect storm – auto insurance sector shrinks by $137 billion

KPMG’s Perfect Storm Scenario (an actuarial model incorporating the latest granular data) indicates a potential reduction of almost 90% in loss frequency by 2050. Coupled with potential severity declines and the effects of mobility-on-demand, total losses could decline by 71%, or $137 billion in nominal terms.

The chaotic middle – a dual challenge

Insurers face a dual challenge: how to migrate to new business models while managing changes in current operations as the effects of autonomy take hold. Clarity of vision and plan will be critical to survival and success.

The report includes a future-state case study examining a day in the life of an insurance CEO in the year 2025. Exiting a board meeting, the CEO recounts his situation in terms of decisions made – and not made. It’s required reading for every executive having anything to do with strategic planning and auto insurance.

The hard analysis contained in the report is organized in five sections, with a healthy amount of hard data provided in each:

1. Alignment for mass autonomy: Acceleration of the pace of change
   1. Autonomous capabilities on a fast track
   2. Legal responsibility
   3. Data management
   4. Mobility services and consumer adoption
   5. A potential shift in the phases of incremental change
2. The triad of disruptors for auto insurance
   1. Disruptor #1: Autonomous technology
   2. Disruptor #2: Emergence of OEMs
   3. Disruptor #3: Emergence of mobility on demand
3. Perfect storm: Modeling the potential impact
   1. A new mix of auto insurance lines
   2. How will cyber risk impact the auto insurance marketplace?
   3. An uncertain future:
      1. Scenario #1: Updated baseline scenario
      2. Scenario #2: Perfect storm scenario
   4. The black swan or an entire flock?
4. Chaotic middle: Dual challenge facing insurers
   1. Everything could change
   2. Functional implications
   3. Traditional insurers: advantages and options
5. Next steps: Heightened call to action
   1. A series of actions to consider:
      1. Understand the changing technology landscape
      2. Evaluate your business strategy
      3. Identify and monitor leading indicators
      4. Understand your company’s exposure to change
      5. Prepare your operations
      6. Understand cost structures
      7. Align with other insurers and form partnerships
      8. Educate and train your people

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