Brace for impact: Autonomous driving and insurance

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If I told you just a few years ago that there would be driverless cars roaming the streets of Pittsburgh, or that a trailer truck loaded with beer would make an autonomous delivery in Colorado Springs, you might laugh. Funny or not, this fantasy has become reality.

Autonomous driving technology is here, and it’s being tested and refined on public streets everywhere. Autonomous vehicles represent one of those rare industry-wide shifts that will reshape business models and markets for automakers and countless related industries. In the crosshairs of this formative change is the traditional insurance market. Are you ready?

Consider some of the pending changes. The auto manufacturers are bracing for competition from non-traditional players. Regulatory bodies are scrambling to create new laws. And the global auto insurance industry will need to adjust its long-standing risk assumptions — things like accidents-per-vehicle-mile-traveled, human versus mechanical error, and a host of other actuarial assumptions. 

Some pundits expect autonomous technology to be incorporated slowly into new vehicles with uneven adoption by consumers. However, we believe that dependent industries, especially insurance, cannot afford to wait for mass adoption before acting. Preparedness is essential and the stakes are high, especially when one steps back to consider that the auto insurance is a $700 billion global market now resting on evolving fundamentals. In fact, a shift in premiums from insurers to the auto manufacturers might be one of the most impactful changes. This could occur well before the majority of vehicles are operating at full autonomy, which suggests that insurers should already be considering a response sooner than later.

The insurance market will see sweeping structural changes as premiums shift to manufacturers (from insurers). Insurance may soon be sold in solutions with the vehicle itself.

Ultimately, autonomous technology adoption should reduce the rate of accidents and, in theory, put downward pressure on premiums. But premiums won’t go to zero. This exciting technology will not eliminate accidents altogether, and there will still be a need for insurance. We don’t live in utopia just yet. Still, the insurance industry’s response largely will be shaped by the fault determination in early cases. This will lead to a better understanding for insurance policies, underwriting criteria, and manufacturers’ approaches. Even if statistics demonstrate that autonomous driving is safer, it is not clear where or how the industry and the courts regulators will look to assign fault. Personal auto policies will also need to evolve to match the autonomous driving features chosen by consumers, not to mention address the potential for cyber risk. Engineers, developers, auto manufacturers and insurance companies are working hard to identify all of the questions and possible solutions.

The automotive industry as a whole, and the auto insurance business specifically, is on the verge of a makeover, and business models are adjusting based on autonomous vehicle technology. Positioning properly to avoid pending pricing pressures and capitalizing on nascent demand and new revenue streams is critical.

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Julien Courbe

Financial Services Leader, PwC US

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