With the rapid advancement of autonomous vehicles, traditional personal auto insurance has the potential to be severely disrupted by new competition and shifts to other types of insurance coverage.
The move to new business models will not be smooth, according to a June report from KPMG entitled, “The chaotic middle: The autonomous vehicle and disruption in automobile insurance.”
Autonomous vehicle technology could shrink the auto insurance sector by 71% — or $137 billion — by 2050, according to the report. As such, the core business model for traditional auto insurance carriers may be under threat of obsolescence, and manufacturers have the potential to be a viable alternative to cover driving risk.
Therefore, insurance companies need to be proactive rather than reactive, Joe Schneider, one of the authors of the report, told Auto Finance News.
“Insurers need a big picture strategy,” Schneider said, adding that companies need to revisit their mission and ask questions like, “Do they want to stay in auto insurance, or do they want to go into warranty or commercial lines?”
Automakers will assume more of the driving risk and associated liability, and have new opportunities to provide insurance to car buyers — taking marketshare away from traditional insurers, the report states. Additionally, by 2050 there will be a significant increase in products liability insurance to 57% of total auto losses in order to cover the autonomous technology in vehicles, and a considerable decrease in personal auto insurance to 22% of total auto losses.
And while this reality will be an incredible upheaval to the traditional business model for insurance companies, there are opportunities for partnerships with OEMs, Jerry Albright, another author of the report, told AFN.
“You are going to see a proliferation for partnerships just because no one can afford to stick it out alone,” he said. “There’s potential for relationships and strategic partnerships between OEMs and insurers … [but] firms are still trying to understand how their partnerships should evolve.”
