DRIVERLESS cars have the potential to profoundly change insurance and one of the most prominent shifts may be a transformation of auto coverage from a personal lines to a commercial lines product, the head of home and auto insurance at RBC Insurance said at an Insurance Institute gathering in Toronto.
Tim Bzowey said at the latest ‘At The Forefront’ speakers series event that autonomous cars have the potential to change not only auto insurance but also our way of life.
“Self driving cars will improve quality of life for elderly, families spending times together and time and fuel savings estimated in the billions.
“You can turn your commute into the best family time of the week.”
He said the insurance industry should be naturally supportive of this change because of its long history of advocating for road safety.
“It is how we historically have operated for centuries and the next thing is how will auto insurance evolve,” Mr. Bzowey said.
He said that commercial lines dominating the auto insurance sector at the expense of personal lines will be the way forward.
“Those with great commercial expertise (will win) and it’s happening already with the sharing economy.”
He said the industry will gradually evolve as the cars evolve. And cars will only slowly move from being completely manually operated to being gradually automated.
“Personal lines insurers need commercial expertise to stay in the game,” he said.
“They will also need richer data, more informed research and advanced analytics.”
Mr. Bzowey stressed that the companies operating today without expertise in data and analytics are “already behind.”
“Data available today, from programs such as usage-based insurance, will help companies prepare for the automated future,” he said.
Meanwhile, a report released last week by Moody’s Investors Service says auto insurers will face long-term challenges from self-driving cars.
“Accident avoidance features in vehicles, such as automatic braking, adaptive cruise control, and lane departure prevention, are becoming more prevalent and will lead to lower accident frequency in the next five-to-10 years — a benefit for auto insurers.
“Longer term, self-driving cars could translate into significantly lower premiums and profits for insurers as the number of accidents declines dramatically.”
The report, titled ‘P&C insurance – Global: Self-driving cars could send auto insurance industry skidding,’ noted that while driverless cars will likely force auto insurers to rethink their business models, wide-spread adoption of the technology is decades away, allowing insurers plenty of time to adapt.
In the near term, it said, technological advances should have a positive impact on auto insurers.
“Accident avoidance technologies are becoming more common in cars which should reduce the number of accidents and boost insurer profits,” said Moody’s assistant vp Jasper Cooper said.
“However, auto insurers will also face higher auto repair costs from embedded cameras and sensors which are often located in or near bumpers.”
Automakers like Ford, Nissan and Tesla have announced plans to introduce self-driving cars in the next few years, which could initially be optional on luxury vehicles.
“Widespread adoption of self-driving cars is still decades off, but it raises questions of what an auto insurer’s role will be in a world with far fewer accidents,” Mr. Cooper said.
“Regulators, lawmakers and courts will have to determine how liabilities are shared among insurers, auto manufacturers and technology companies.”
The report noted that once self-driving cars are mainstream, accident frequency will fall sharply, translating into significantly lower premiums and, consequently, lower profits for auto insurers.
“The industry impact could be dramatic over the very long term given that personal auto is the largest p&c insurance line in many countries.”
Moody’s said that despite the uncertainties self-driving cars cast over the auto insurance industry, insurers have time to innovate and diversify in order to stay competitive in a potentially narrower market.
Therefore, it is expecting significant industry changes including consolidation, failure, and the potential rise of new entrants as self-driving cars have a transformative impact on the global auto insurance industry.