KPMG, an audit, tax, and advisory firm that operates a large practice in Detroit, today released a new study indicating autonomous vehicle technology could have a significant impact on the car insurance industry.
The report, “The Chaotic Middle: The Autonomous Vehicle and Disruption in Automobile Insurance, projects the auto insurance sector could be downsized by 71 percent by 2050 due to an accelerated pace of change. It also shows an increasing need for new types of insurance offerings.
“Insurance companies will have to make important strategic and tactical changes sooner than anticipated to navigate through this turbulent transformation of the industry,” says Jerry Albright, principal in KPMG’s actuarial and insurance risk practice. “New business models bring about a decade or so of a ‘chaotic middle’ as insurers adjust their strategies and operations as autonomous vehicle technologies significantly deplete the need for personal auto insurance.”
The report says the three major forces disrupting the current $247 billion premium auto insurance marketplace are:
- Autonomous technology is making cars increasingly safer, leading to a potential 90 percent reduction in accident frequency by 2050.
- Automotive OEMs will assume more of the driving risk and associated liability and have new opportunities to provide insurance to car buyers, taking market share away from traditional insurers. KPMG estimates there will be a significant increase in products liability insurance to (57 percent by 2050) to cover autonomous vehicles. Personal auto insurance is expected to cover only 22 percent of future total auto losses.
- The rapid adoption of mobility-on-demand is translating to the need for less personal auto coverage, with the use of fleets requiring commercial auto insurance.
“Insurance companies are varied in their level of preparedness for this disruption and many have taken limited action to face this challenge,” adds Joe Schneider, managing director at KPMG corporate finance. “As a result, auto insurers may choose to branch out into home-related products, or other commercial coverage, to benefit from diversification.”
KPMG’s independent member firms have 189,000 professionals, including more than 9,000 partners, in 152 countries.