Is the Insurance Industry Ready for Autonomous Cars?
With The Future of General Insurance event underway this is a good time to discuss self-driving cars, which will be a reality in no time. Google, Mercedes-Benz and Tesla have been testing autonomous cars globally, according to news.com.au, with Volvo recently showcasing a Volvo XC70s travelling up to 70 kilometers per hour on an expressway in Australia. Apple also seems to be entering the autonomous arena.
Telsa CEO Elon Musk is quoted in the same news.com.au article as saying he believes fully-autonomous cars are only a few years away. And Uber has announced its intention to build self-driving cars by partnering with Carnegie Mellon University at the new Uber Advanced Technologies Center in Pittsburgh.
And yet many property and casualty/general insurers aren’t preparing for this huge industry development, according to a survey by research firm KPMG. In “Automobile insurance in the era of autonomous vehicles,” a survey based on months of market research and analysis, only 29 percent of company leaders feel very knowledgeable about driverless vehicles.
Failure to prepare could prove devastating, as KPMG is predicting cataclysmic change:
“Within 25 years, our models suggest a scenario where the personal automobile insurance sector could shrink to less than 40 percent of its current size.”
Increased automation is expected to significantly reduce accidents, meaning car owners will need less coverage (and lower premiums). Donald Light, head of the North America property and casualty practice for Celent, told Bloomberg that premiums consumers pay could drop as much as 60 percent in 15 years.
On the positive side for the insurance industry, autonomous cars will open up some opportunities. “Although accident rates will theoretically fall, new risks will come with autonomous vehicles,” Domenico Savarese, group head of Proposition Development and Telematics at Zurich Insurance, said to Reuters.
Theft, weather, vandalism and other exterior risks will continue to be insurable risks, and make up the main part of the car insurance risk profile.
New Opportunities
Hackers will likely cause manufacturers to buy cyber coverage (remember this?) and technology fails could lead to big liabilities that manufacturers will want coverage for, especially if self-driven cars feature expensive technology and systems. Faulty software could shift insurance liability from customers to manufacturers – Volvo stating they would assume responsibility for self-driving accidents was a major milestone.
The way passengers are covered, for bodily injury for example, will have to be addressed by both insurers and regulators, and could lead to some creative and flexible agreements.
Ready to Race Ahead?
So how should insurers begin preparing for self-driving cars?
- Partner with an Industry Expert: insurers will benefit from consulting with a property and casualty/general insurance industry expert that possesses a deep understanding of regulatory and legislative issues, an existing network of organizations or customers that will be potentially useful for strategizing and forming alliances, and knowledge of the entire vehicular ecosystem. An effective partner is one that has demonstrated the ability to successfully evolve along with the insurance industry in the past.
- Decide on their Google Strategy: KPMG survey respondents expect Google to play an important role, with 87 percent anticipating that Google will control driving data and over half saying Google will distribute insurance. As a previous Sapiens Spotlight blog post noted, it’s important for insurers to decide on a Google strategy and leverage their existing advantages over Google.
- Upgrade their Policy Administration Systems: legacy systems weren’t designed for the complicated challenges being generated by our evolving industry. As mentioned earlier, autonomous cars will open up a new opportunity for insurers to sell plans to carmakers and third parties developing cars’ automated features. This will require a system that can bring innovative new products and plans to market quickly.
Additionally, automated cars will build upon the automotive usage-based insurance (UBI) trend, generating billions of accessible data points. Insurers will require a system that can help them sift through this data to find the value and provide them with the flexibility and agility to act on it. Driverless/connected cars also offer opportunities to customize policies to clients, such as paying a lower premium for “safe” drivers, etc.
The race to get ready for autonomous cars has clearly started for insurers. It can be safely navigated with some advanced planning and calculated strategies.
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Asher Gilmour Asher Gilmour is Sapiens’ director of product marketing, P&C/General Insurance and Reinsurance division. He possesses a deep understanding of the insurance market and its trends, and extensive experience in designing software business processes and functionality for the insurance and financial services marketplace.