The move away from diesel- and gasoline-fuelled cars will help bring autonomous vehicles (AVs) even closer to reality. It’s time for insurers to get into the driver’s seat.
First came the early innovators. When Tesla, Google, Uber and others announced they were developing driverless cars, insurers remained quiet. Next, mainstream auto manufacturers entered the race, but still there was little indication that the industry was mobilizing to respond to the imminent change. Now governments are paving the way for autonomous vehicles (AVs), and we have yet to learn of new alliances and products that recognize the unavoidable impact of AVs on the future of insurance. Are carriers playing their cards close to their chest, or are they asleep at the wheel?
The U.K. recently announced it will ban sales of diesel- and gasoline-fuelled cars by 2040 and invest US$1 billion in zero-emission and driverless technologies. (The two technologies – autonomy and electrification – are not essential to each other but symbiotic, and most visions of future transportation include them as the twin characteristics of the majority of vehicles.) The U.K. joins France, which recently made a similar announcement as part of its strategy to meet its Paris Agreement targets. India has plans for 100% electric vehicles by 2030, as does Germany, and Norway’s target of 2025 is even more ambitious.
And while the United States’ recent withdrawal from the Paris Agreement leaves some questions about the future of federal subsidies for electric vehicles, states and cities are taking a proactive approach to limiting CO2 emissions from automobiles. U.S. lawmakers are moving closer to approving self-driving cars, and are proposing limiting regulations that would restrict their proliferation.
Insurers have been idling as car manufacturers have been making their moves. Volvo recently announced that by 2019 all its new models will have a hybrid or 100% battery-powered engine, a response to both customer demand and EU regulatory pressure. The car company joins Volkswagen, BMW and others who are pursuing their own electrification agendas. It’s clear that a global shift is well underway, but insurers have been slow to catch on.
We believe AVs will be the largest disruption in the history of automotive transportation since Henry Ford’s assembly line in 1908. A recent study by independent research firm RethinkX, Rethinking Transportation 2020-2030, predicts that “by 2030, 95% of US passenger miles traveled will be served by on-demand autonomous electric vehicles.” Just as the Model T replaced the horse and buggy, electric AVs will replace their polluting predecessors.
What does this mean for insurers?
As AV technology develops, driverless cars become safer. Advanced Driver Assistance Systems (ADAS) have been proven to reduce fatalities and we anticipate that higher levels of autonomy will reduce risk even further. With reduced risk comes a reduction in claims, so insurers are bracing for a reduction in revenue from premiums. AVs are also expected, to a significant degree, to shift vehicle ownership from large numbers of individual insurance customers with limited power to influence their premiums, to a few corporate owners with greater buying power. This too will force down premiums.
Insurers must also prepare for the new risks and opportunities, and develop new coverage models to address them:
Cyber-security risk – AV systems could be vulnerable to hacking.
Software or hardware failures – driverless cars shift the burden of liability from humans to manufacturers
Communication infrastructure risk – AV relies on a system of communication between road infrastructure and other vehicles.
To capitalize on these opportunities, insurers must work now to identify and invest in scalable insurance products and services for AVs. They should look toward developing new partnerships with technology companies, auto manufacturers, and governments with commercial and product insurance in mind. They should engage with regulators to ensure that the future of individual, shared and commercial transportation is safe for all parties concerned. In order to do all this, insurers should consider growing their capabilities in telematics, data and analytics, advanced driver assistance, and machine learning.
Consumer demand, government incentives and regulations, and technological advances are all driving AV closer to reality. The U.K.’s announcement marks another step toward the AV revolution. We don’t yet know what the car of 2040 will look like – a luxurious private pod that whisks us to our destination while we work or relax, or a fleet of flexible car-sharing and subscription choices. Nonetheless, major changes are on the road ahead – and as our recent analysis with Stevens Institute of Technology shows, they could result in a multi-billion-dollar bonanza for insurers. It’s time for insurers to act.
Download Accenture’s full report, Autonomous Vehicles: Plotting a route to a driverless future.