Benjamin Preston does a good job connecting the dots on the implications of autonomous vehicles on the insurance sector, but doesn’t take the final step:
Benjamin Preston, Insurers Brace for the Self-Driving Future and Fewer Accidents
According to KPMG’s report, the insurance industry could contract by as much as 60 percent by 2040 as accident damage payouts and premiums fall.
Even Warren E. Buffett, whose Berkshire Hathaway conglomerate owns Geico, has said that widespread adoption of autonomous technology poses “a real threat” to the industry.
“This technology will be disruptive to the insurance industry,” Mr. Albright said. “There will be winners, and there will be losers. There will be fewer companies than there are today. But the question is, Who will survive?”
It could even result in fewer cars for companies to insure. A recent report from Barclays Capital said that autonomous technology would lead to a 40 percent decline in sales and a 60 percent drop in the number of cars on the road.
Already, the changes are happening. Devices like automatic braking, adaptive cruise control (it adjusts the car’s speed to match that of the traffic ahead) and sensors that automatically keep the car from drifting outside a lane are available. And this does not include the fully autonomous cars that companies like Google and automakers have been testing for years.
Insurance companies have, accordingly, been examining potential changes to the current business model.
KPMG’s report envisions a future in which insurers will depend more on commercial accounts for revenue as companies offering ride-sharing and mobility on demand become more prevalent. Individual policyholders will decline as households get by with one car, or no car at all.
And as the cost of covering losses declines, so will the premiums insurers collect. “Currently, the personal auto sector accounts for almost $125 billion in loss costs,” the report said. “By 2040, we believe this sector could cover less than $50 billion in loss costs.”
The strong likelihood is that at some point the incentives for car ownership for the average person drop to zero, and functionally all cars for personal transportation will be owned by services (like Uber), car manufacturers (like GM or Ford) or — and this is where Preston doesn’t venture — to municipalities, who might start to deal with cars as an aspect of public transportation, more like buses or bicycles.
This is not dissimilar to the regulation of taxis today, but once there is no driver in the picture, and the attractions of personal car ownership decrease, cities will have strong incentive to step forward. Just consider the value of the freed up parking — on street and off — if cars no longer spend 95% of their time parked.
At that point, municipalities would insure in a way similar to their buses, trains, and bicycles, at vastly different economics that leave insurance companies completely out of the picture.