When it comes to autonomous vehicles, insurers will face a dual challenge: migrating their operations to a new business model while simultaneously managing the changes in their current books of business. Will insurers move quickly enough to emerge from the changes winners, or stay stuck in the chaotic middle?
By many accounts, highly autonomous vehicles should be on the road in the next few years. As drivers, we’re thrilled. But as insurance leaders, it gives us pause for some concern.
We’re thrilled because of the safety benefits that automated vehicle technology will deliver. We’re thrilled about the prospect of getting some work done while on our morning commutes. We’re thrilled when we think about the massive changes that vehicle autonomy will bring to our cities and communities. And we’re thrilled knowing that – when our parents are old and unable to drive they’ll still maintain freedom thanks to autonomous vehicles.
But with any revolutionary technology, there are also some concerns - and in this case, those concerns are not related to the technology, safety or even data (although those have their own issues, too). The concern is that many insurers may be underestimating the pace and severity of the change that automated vehicles will bring. And this, in turn, will create challenges across the wider insurance and financial industries.
The problem is that most automotive and personal-line insurers are facing a ‘perfect storm’ of disruption. As vehicles become safer, the frequency of accidents will most likely plummet (our estimates suggest by up to 90 percent over the next 30 years) which, in turn, will put downward pressure on premium and profits. At the same time, competition could increase dramatically as auto manufacturers and tech companies start to use data from autonomous vehicles to develop new insurance models and products.
Facing lower revenue and new competition, many automotive insurers recognise that the status quo is unsustainable. But they also know that a transformation of this scale and pace will not be smooth. Insurance organisations will face a dual challenge: migrating their operations to a new business model while simultaneously managing the changes in their current books of business to emerge from the changes a winner.
It will not be easy. Indeed, we expect the insurance sector to go through a ‘chaotic middle’ over the next decade that will be characterised by rapid and fundamental changes to business models, disruptive competition, the adoption of new strategies and the utter transformation of the automotive insurance value proposition. Company actions today will help determine the winners and losers tomorrow.
So the concern is really two-fold. On the one hand, we worry that some insurers are not moving quickly or boldly enough to ensure their organisations’ survival in the era of autonomous vehicles. Far too many companies seem to be taking a ‘wait and see’ approach to transformation even though the future is getting clearer by the day. Now is the time to act.
Which leads to another broader concern: massive disruption in the auto insurance sector will lead to issues in the wider insurance and financial services sectors. In the US alone, auto insurers generate a quarter of a trillion dollars’ worth of premium yearly with the wider Property and Casualty sector worth roughly three quarters of a trillion dollars. And that’s just the US market. Should the next five to ten years be as disruptive and chaotic as we expect, this could cause significant challenges for insurance and financial services businesses worldwide, although opportunities as well.
When it comes to autonomous cars, we’re thrilled about the massive benefits that we’re going to enjoy as drivers and consumers. But we’re also worried about how their introduction will impact insurance companies and markets.
That autonomous vehicles are coming is clear. How automotive insurers will adapt to this massive transition is not quite as clear.