The insurance industry does not buy into the hype surrounding self-driving vehicles. That’s the verdict from consultant firm KPMG, a new report from the organization states that auto insurers do not expect robotic cars to disrupt their business any time soon.
Interestingly enough KPMG’s experts disagreed with the insurance executives. Fully autonomous cars capable of driving at any speed will appear on our roads within five years by around, 2020, the report called Automobile insurance in the era of autonomous vehicles predicted.
Most vehicles will have some self-driving capabilities by 2017 which is just two years away, KPMG predicted. KPMG also contends that all new cars will be fully autonomous by 2025 and all cars on the road will be self-driving by the year 2040.
Auto Accidents could Drop by 80%
The number of auto accidents could drop by 80% once self-driving cars are widely adopted, KPMG predicted. KPMG’s estimate is based on research that indicates that 90% of car accidents are caused by driver error.
The rate of vehicle accidents will decrease by around 10% year as self-driving cars became widely adopted. That means auto accidents could become rare events and many personal injury attorneys will have to look for a new career.
If that prediction is true auto insurance costs could drop by as much as 80% because accidents are the main risk ensured for. By the year 2040 your auto insurance bill could be $10 or $15 a month for a brand new car!! Naturally that won’t do Progressive (NYSE: PGR) and Allstate’s (NYSE: ALL) profit margins much good.
Although KPMG thinks that insurance rates could drop by 40% because industry costs would drop by 40%. If that’s true your auto insurance bill in 20 years will be half of what it is today. The savings to society could be immense too because insurance industry losses caused by accidents would fall by around $86 billion by 2040.
Insurers currently pay out around $125 billion in accident claims. That means the amount of accident claims paid out by 2040 would be around $39 billion.
The Insurance Industry could be devastated
Some of the savings might not be that great because vehicles and repairs will get more expensive. That means collision insurance costs which form a small part of policies could get higher by 2040.
Not surprisingly KPMG predicted that auto insurance premiums will fall drastically at some time. My prediction is that average drivers will not see the savings until around 2030 so do not hold your breath.
This does not mean that self-driving cars will not disrupt the auto insurance industry. They could devastate it because the high level of premiums that drive high profits for companies like Berkshire Hathaway’s (NYSE: BRK.A) GEICO will disappear. That means in twenty years corny auto insurance commercials will become a historical curiosity much like cigarette advertising is today.
Insurers will have to create new products to deal with the transformation or find themselves headed for insolvency. One result of self-driving vehicles could be a much smaller insurance industry with less money and power.
Another intriguing result of the appearance of autonomous vehicles could be the issuing of special cheaper insurance policies for such automobiles. The savings from those policies could be an important factor in driving the widespread acceptance of autonomous cars.
Regulation Won’t Stop Self-Driving Cars
Many people in the insurance industry expect regulators to block the adoption of self-driving cars. That seems a little optimistic because regulators are often irrational their decisions are based on politics and on legal authority. The most likely action of regulators will be to simply ignore autonomous cars until somebody probably the courts forces them to act.
Something to remember is that regulators are bureaucrats they hate what is new and do not like dealing with it. Few regulators are prepared to deal with a new technology until it is widely adopted. Regulators like the insurance industry are reactionary they only adapt to change when forced to do so by changing events.
If this report is to be believed the insurance industry will be completely disrupted if not devastated by autonomous cars. The devastation could be far greater than it needs to be because the industry is not prepared to deal with it at least mentally.
The big winner from self-driving cars will be the average person because high auto insurance premiums could be a bad memory in a couple of decades. There will come a time when people wondered why we invested so much time and money in auto insurance.