Self-driving cars are coming - insurers need a strategic response
Self-driving cars are coming - insurers need a strategic response

Self-driving cars are coming - Insurers need a strategic response

Autonomous vehicle technology will require P&C players to rethink-and reboot-their business models.

A driverless future is, in some ways, already upon us. Think about it: automatic braking, self-parking, lane assist, night vision, adaptive cruise control. 

So this is all happening now, with the technology merely getting better and better. These super-computers-on-wheels and their ultra-sophisticated systems of artificial intelligence, lidar, radar, and camera and thermal technology will unquestionably transform society.

But transformation will come with profound implications for the industries that are tangential to automotive. Notably insurance. Autonomous technology doesn’t just seek to make self-driving cars that drive like humans (good thing, since 94 percent of auto accidents are caused by human error, according to a study by the National Highway Traffic Safety Administration). No, the goal is to develop cars that don’t crash—or at least crash much less.

Indeed, between today and roughly 2050, KPMG actuarial analysis suggests there could be a roughly 90 percent decline in auto accidents. Fewer accidents in combination with more affordable technology underpinning driverless capabilities will lower the amount of losses—and as a result premiums—insurers will have. No spoiler alert there.

By how much losses decline is up for debate, but as ridesharing grows and automated vehicle technology becomes more pervasive, losses attributable to personal auto insurance are poised to fall precipitously, while commercial and product liability losses are expected to increase as a percentage of a much smaller overall loss pie.

How will you manage your business through this transformation? With disruption occurring throughout the auto insurance industry, companies need to diversify to find alternative sources of revenue. We highlight three potential areas for auto coverage diversification: home insurance and related products and services; commercial coverage of autonomous fleets; and a diversification from personal lines to commercial for small business.

Here are a few high-level ideas to kick-start your diversification efforts:

  • Revisit your company’s mission to determine the right product mix—are you focused on the right customers?
  • Are your personal auto products designed to successfully underwrite and price the risks in an era with these new technologies?
  • Identify your current—and potential—competitive advantages—is your market position sustainable?
  • Have a point of view on the competition—how should your strategy be similar or vary?
  • Find gaps in your insurance portfolio and close them—should you build, buy or align?

It’s will remain a fluid environment for some time, and much remains unclear about how the autonomous future will ultimately unfold. One certainty, though, is the need to be more creative, increasingly flexible and have a plan in place now.

For more on how autonomous vehicles are expected to disrupt the auto insurance read our paper The Chaotic Middle.

To learn about how our automotive practice foresees autonomous vehicles with emerge in cities across the world read the paper Islands of Autonomy.