Auto insurers could see a boost in premium revenue from now until 2025 by insuring the tech systems in autonomous vehicles.
By 2035, 23 million autonomous vehicles will cruise down U.S. roads, predicts the Stevens Institute of Technology. Considering auto manufacturers like Ford and BMW as well as tech giants Apple and Google have already begun to test driverless cars, that number doesn’t seem so far-fetched. Lured by the potential to reduce human error caused accidents and propelled by innovative technologies, self-driving cars represent a new frontier in transportation.
For auto insurers, autonomous vehicles mean a complete overhaul in auto policy underwriting practices and risk assessment looms on the near horizon. Before long, auto insurers will base premiums not on the individual driver, but rather the high-tech systems steering the car and controlling traffic on the streets. This change comes at a time when insurers like State Farm have racked up massive underwriting losses in their auto insurance line as claim payouts skyrocket due to more accidents and the costly repairs crashes cause.
Yet a recently released report by Accenture and Stevens outlines how auto insurers could boost premium revenues by insuring self-driving cars — at least in the short term. To gain those increased premiums, however, auto insurers must rewrite policies to reflect the new rules of the road.
Premiums to Grow by $81 Billion by 2025
Whether driven by a human or not, cars still need insurance to protect against potential hazards. But as Accenture and Stevens researchers emphasize, policies underwritten for driverless cars need to account for risks and threats posed by cyber security lapses, manufacturer liability for possibly faulty software and hardware systems, and public infrastructure disruptions. Those emerging risks within the auto insurance segment led Accenture and Stevens to forecast an $81 billion hike in auto policy premiums by 2025.
Though theoretically freed from human mistakes, driverless vehicles are subject to those potentially damaging glitches. Hackers could pirate the car’s complex tech programs, breaching its data and security systems. The sensors and other devices guiding the car might malfunction as may the cloud-based external networks that manage traffic signals. Insurance policies for autonomous cars, therefore, must provide coverage for those likely events.
Of the $81 billion premium total, cyber security protection will account for $64 billion, the Accenture and Stevens report calculates. Product liability insurance will make up $14 billion, and public infrastructure coverage $3 billion.
“Autonomous-vehicle technology will drive a significant shift in risk from human error to malicious third party, software, hardware and infrastructure risk,” Chen Liu, co-author of the report and a research assistant at Stevens Institute of Technology’s School of Systems and Enterprises, said. “Understanding and proactively responding to this anticipated enterprise transformation is imperative.”
Less Reliance on Individual Policies
As driverless vehicles outnumber human-driven cars, insurers will write fewer individual policies, writes Werner Rapberger, Principal Director of Accenture’s Distribution and Marketing Practice for Insurance. The market for autonomous vehicles will shift to equipment manufacturers and other service providers, such as ridesharing companies, he adds.
As safer cars driven by technology, not accident-prone distracted humans, take to the road, insurers will see their claims payouts decline. But a dip in losses, Rapberger writes, may not be enough to offset an eventual erosion of total premiums due to the advent of driverless cars. “While insurers of autonomous vehicles will make fewer payouts for claims, this will not compensate them for lost policy revenues,” he says.
John Cusano, Senior Managing Director at Accenture and global head of the company’s Insurance practice, concurs premiums will spike from now until 2025 as auto insurers target a this new audience for auto insurance. After that date, premium growth with either plateau or decline. “Our research suggests that auto premiums will increase before they decline on this trend, so insurers that can navigate the changing technology environment could win market share,” Cusano said.
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