At first glance the rise of autonomous vehicles looks like bad news for the insurance industry. Who needs insurance when your car never crashes?
However, a new report argues there’s $US81 billion up for grabs for forward-thinking insurers which will offset a decline in traditional insurance premiums.
The possibility that the rise of driverless cars will significantly reduce the number of road accidents — and therefore the need for insurance — will be accompanied by new kinds of insurance policies, focusing on manufacturers rather than individuals.
According to the report from Accenture and Stevens Institute of Technology, insurance coverage for autonomous vehicles will bring $US81 billion in new premiums to the US auto insurance industry over the next eight years, driven by risks related to cyber security, software and hardware and by the need for additional public infrastructure coverage.
“Insurers are bracing for long-term declines in auto premiums as new and safer autonomous vehicles gain adoption,” said John Cusano, a senior managing director at Accenture and global head of the company’s insurance practice.
“However, our research suggests that auto premiums will increase before they decline on this trend, so insurers that can navigate the changing technology environment could win market share.”
For the report, “Insuring Autonomous Vehicles: An $81 Billion Opportunity by 2025,” Stevens Institute of Technology developed several models to evaluate the impact of autonomous vehicle technology on the insurance industry. These models were then applied to different scenarios and insurance products based on parameters set by Accenture’s Insurance and Connected Transport teams.
The research found that cybersecurity, product (software and hardware) liability and public infrastructure insurance for autonomous vehicles could reach a total of $US81 billion by 2025.
The report notes that this premium growth will kick in before an anticipated decline in industry revenue beginning in 2026 and that, as roads become safer and policies shift from consumers to autonomous vehicle manufacturers and other service providers, insurers will see reduced demand for personal insurance.
Larry Karp, a co-author of the report and global insurance telematics lead in Accenture Mobility, part of Accenture Digital, said, “Three new business lines — cybersecurity, product liability for sensors and software algorithms, and public infrastructure — are going to drive billions in new insurance premiums for the US auto insurance industry in the coming years. Forward-thinking insurers are already putting these new products at the top of their agenda as they look to capitalise on the first-mover advantage.”
The research found that cybersecurity insurance will be the greatest potential driver of new premiums, totaling $US64 billion by 2025, followed by product liability insurance ($US14 billion) and public infrastructure insurance ($US3 billion).
These three new business lines include:
- Cybersecurity Protection against remote vehicle theft, unauthorized entry, ransomware and hijacking of vehicle controls, as well as coverage for identity theft, privacy breaches and the theft or misuse of personal data.
- Product liability for sensors and software algorithms Manufacturer coverage for failures related to communications (e.g., internet connection), software (including bugs, memory overflow and program defects) and hardware (sensory circuit failure, camera vision loss, and radar and lidar failures).
- Public infrastructure Insurance for cloud server systems that manage traffic and road networks, in addition to failure of external sensors and signals; and communication problems originating at the system level.