Autonomous vehicles are likely to be a major disruptive force to motor re/insurers, bringing an expected reduction in the risk pool which would decrease motor premiums and downsize the motor insurance market over the long-term, according to J.P. Morgan analysts.
In an assessment of the long-term implications of autonomous vehicles for the motor insurance risk pool, J.P. Morgan analysts predict limited near term threat, even under rapid adoption rates, but foresee a longer-term premium decline.
Two key risks for motor insurers stem from an expected reduction in accident frequency and the shifting purchase of insurance from individuals to OEMs and corporate buyers.
These factors will mean the motor insurance industry will become smaller, with a shrinking risk pool coupled with the likelihood of greater purchasing power of larger organisations suggesting lower industry margins.
“Over a longer time horizon there is little doubt, in our view, that accident frequency will fall.
“In the near term, however, we expect the gradual move towards ADAS (advanced driver assistance systems) to result in rising severity, due to the increased repair cost of more sophisticated vehicles,” said J.P. Morgan analysts.
The motor industry is expected to take a fast shift towards increasingly advanced ADAS features, however, as with the uptake of most innovations, it will take time before the numbers of highly autonomous vehicles becomes significant.
“By 2020 we expect that a majority of cars will have features that can be categorised as at least level 1, however with conditional automation not reached until level 3, it is evident that even by 2025 we expect that less than 5% of vehicles in use will qualify.
By 2030 we expect this to rise to 15%, of which 7% will qualify as autonomous vehicles in which the driver is not required to intervene, even in emergency scenarios.
Thus motor insurers will likely have ample opportunity to adjust to the changing marketplace and innovate accordingly, “as such we believe the inflection point in the pool of motor premiums remains a distant threat.
“It also could be argued that if the industry is slow to price for improving accident trends, a period of elevated (windfall) profits could occur before an eventual longer term decline,” said J.P. Morgan.
However, not all industry experts agree on the potential disruptive impact of autonomous vehicles on the motor insurance industry, with some arguing that a shift in the legal framework that would place liability in the hands of vehicle production firms and corporations versus individual car owners is unlikely – a factor which would mitigate future shrinking motor premiums.