Canadian Underwriter

Majority of U.S. insurers unprepared for autonomous vehicles: KPMG LLP survey

June 18, 2015   by Canadian Underwriter

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Seven in 10 U.S. insurers are unprepared for the potential disruption caused by autonomous vehicles, suggests a study released on Wednesday by audit, tax and advisory firm KPMG LLP.

The survey found skepticism about the potential transformation autonomous vehicles will bring in the near-term. Photo: KPMG

KPMG surveyed senior U.S. insurance executives whose companies, in aggregate, account for almost US$85 billion in personal and commercial auto premiums, the firm said in a press release. The Automobile Insurance in the Era of Autonomous Vehicles Survey found skepticism about the potential transformation autonomous vehicles will bring in the near-term.

“Few carriers have taken action – not due to doubts about the possible ramifications, but rather because most believe the change will happen far into the future, if at all,” the release said. “In fact, 84% of executives don’t expect autonomous vehicles to have a significant impact on their business until 2025, while 42% expect a significant impact in six to 10 years.”

Nearly three quarters of insurers (74%) feel they are unprepared for autonomous vehicles today, the surveyed noted. In addition, more than half of respondents (55%) believe that regulators will impede the adoption of autonomous vehicles, which may help to explain why they anticipate a more distant effect on their business.

But Jerry Albright, principal in KPMG’s actuarial and insurance risk practice, argued that the “disruption of autonomous vehicles to the entire automotive ecosystem will be profound, and the change will happen faster than most in the insurance industry think. Technology is making cars safer, impacting underwriting practices, claim frequency and severity as well as auto premiums. To remain relevant in the future, insurers must evaluate their exposure and make necessary adjustments to their business models, corporate strategy, and operations,” he advised.

According to the survey, only 29% of executives feel very knowledgeable about autonomous vehicles, and a small percentage (10%) have developed a strategic plan to deal with the impact. Most respondents say they are only in the ‘discussion phase’ or have done nothing at all to prepare, despite acknowledging an expected decline in claim frequency and premium per policy.

By contrast, the survey said that “within 25 years, our models suggest a scenario where the personal automobile insurance sector could shrink to less than 40% of its current size.” Accident frequency could drop by 80% by 2040, the study suggested. [click image below to enlarge]

Accident frequency could drop by 80%, the study suggested

With regard to the business areas that will be most significantly impacted by autonomous vehicles, executives most frequently cited underwriting (61%), product management (52%) and claims (52%). In fact, 94% identified “understanding the underwriting impact” of autonomous vehicles as the most critical area of focus, as many expect they would have to decrease the premiums charged for personal and commercial auto insurance.

“As the trend towards car-sharing proliferates and mobility-on-demand companies like Uber and Lyft become more popular, commercial lines likely will take a larger share of the automobile insurance pie,” said Alex Bell, a managing director in KPMG’s CIO Advisory practice, in the release. “The share of the personal auto insurance sector will likely continue to shrink as the potential liability of the software developer and manufacturer increases. At the same time, losses covered by products liability policies are likely to increase given that the sophisticated technology that underpins autonomous vehicles will also need to be insured.” [click image below to enlarge]

94% identified “understanding the underwriting impact” of autonomous vehicles as the most critical area of focus

When asked which components of personal and commercial auto coverage would change the most in an autonomous vehicle landscape, executives most frequently cited liability (94%), followed by property damage (52%) and medical/personal injury prevention (29%). Further, 71% believe the cost of vehicle parts replacement will be more expensive.

When asked how autonomous vehicles will impact the insurance industry over the next 10 years, executives said they expect the ecosystem to evolve. In particular, executives point to the emergence of niche writers (42%) and new providers (39%). Other than traditional insurance companies, respondents cited original equipment manufacturers (OEMs) (58%); start-up companies (45%); established technology firms (39%); and investment firms (32%) as the major providers of vehicle insurance in the future. At the same time, many anticipate increased consolidation among the traditional writers.

“The potential reduction in car ownership and decreased demand for personal auto insurance could lead to financial stress for less-diversified carriers, triggering consolidation in the insurance industry,” suggested Joe Schneider, a director at KPMG Corporate Finance LLC.

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