Autonomous Insurance: How Future-Ready are insurers?

With connected and autonomous vehicles set to change the insurance liability paradigm away from human drivers, this article examines whether insurers and automakers are really ready for a driverless future.

That’s the question posed by Ulrike Deetjen, partner and co-leader of digital ecosystems for insurers, McKinsey & Co, Kersten Heineke, partner and co-leader of the McKinsey Center for Future Mobility and their co-authors in a blog post on their firm’s website. In it they discuss the future of mobility and argue that forward-thinking motor insurers can update their approaches “to serve climate-conscious, tech-savvy customers”.

They add in their article, Are insurers ready for the future of mobility?: “In the medium term, insurers can plan to jump at new business opportunities, using the insights and data they have collected from mobility insurance solutions to grow into other areas of the mobility ecosystem. Fleet management, buying and selling used cars, the electric charging market, and car servicing sectors are just a few of the many options. More diversity also provides advantages over aggregators, which tend to benefit from standardization.”

Insurers exploring the market

Speaking to TU-Automotive, Deetjen and Heineke explain the insurers have explored the market potential of connected and autonomous vehicles (CAVs). Their research suggests that more collaborative effort is required by insurers, carmakers, mobility service providers (MSPs), cities and data marketplace players to capture their full market potential. “The sensor technology embedded in vehicles needs to be linked to insurance products to meet rising clients’ expectations – from pricing premiums, developing new products such as pay-as-you-drive or pay-how-you-drive to better customer service,” they explain before adding that a third of all private vehicles sold in 2030 could have Level 3 connectivity and autonomous functionalities or higher by 2030.

The outcome should be fewer claims as a result of fewer accidents occurring. “Our estimate is that we will have a 40% reduction in frequency but those fewer accidents could be more severe, being roughly 15% more expensive per claim,” they suggest.

Clear legal definitions

Jonathan Fong, Association of British Insurers (ABI) senior policy adviser for general insurance, stresses the need to “establish and communicate clear legal definitions around the limits of a vehicle’s self-driving capabilities, and to help users understand their obligations and responsibilities when using them”. Insurers will also need to fulfil their legal obligations. In the UK that means complying with the Automated and Electric Vehicles Act 2018 because of the need to have access to vehicle data.

He explains: “The details of how this data will be shared have yet to be established. The industry stands ready to work with the government and vehicle manufacturers to put in place an appropriate framework for the sharing of data as this will be crucial in determining liability and understanding the cause of an incident.”

Changing the insurance landscape

Rebecca Marsden, ibott underwriter at Apollo Syndicate Management, believes the autonomous technology will transform mobility, changing in turn the insurance landscape. With private vehicle ownership predicted to fade as the primary model of mobility, she says B2C motor insurance will become risk aggregated by automakers, autonomous vehicle (AV) companies and mobility-as-a-service (MaaS) operators.  She believes that insurance solutions will need to be embedded and based on the usage-based insurance (UBI) model.

She adds: “Those insurers active in this space are already engaging with OEMs to prepare themselves for what the future holds; we would expect that as autonomous vehicle deployment continues to increase, and insurance industry understanding also increases, this engagement will increase across the board.”

Fewer personal policies

With private vehicle ownership predicted to fall to ride-sharing and subscription models, for example, the question remains about what will happen to the sales of insurance policies: will they fall? Fong suggests that the increasing sophistication of motor insurance means that it will become increasingly vital to offset any rising costs of repairs. He said: “It is also worth remembering that many motor insurance policies also provide cover for perils such as fire and theft. The industry is committed to supporting the development of this new technology. While car manufacturers are producing innovative hardware and software, insurers are innovating their products to make sure vital questions of safety and liability are answered to make the UK’s autonomous vehicles market a global leader.”

Deetjen and Heineke think the forecast shift away from personal vehicles to shared autonomous vehicles will occur particularly in towns and cities. Their analysis considers it more likely that private vehicles will be replaced by robo-taxis and robo-shuttle value pools could be worth as much as $415Bn in 2030.

They feel that it will lead to a dramatic reduction in the number of insured vehicles as there will be a shift in the customer base from individuals to fleets in conjunction with fewer collision and accident claims. Filling up this void will be other types of claims, such as those emanating from glass or natural hazard insurance policies and incidents.

Automakers take on a bigger role

“For personal vehicles, insurers will also partner with OEMs as they take on a bigger role within the value chain. One example: as car sales shift to direct-to-consumer models, OEMs will become an important insurance sales platform,” they explain.

While insurance claims are expected to fall with increasing vehicle automation, they believe the claims will become more predictable as human error will be eliminated as a cause, and therefore it will be less of a factor in the business. It will also challenge the traditional business model that requires good drivers to pay up for bad drivers and there will be more individualized pricing.

Change in risk

Marsden reveals that, today, “more than 36% of global non-life insurance premiums relate to traditional road vehicles, which is currently paid by vehicle owners and operators”.  The move to MaaS, a shift in ownership structure and in insurance distribution models will alter the insurance landscape. However, she doesn’t believe the nature of motor insurance will change, just the risk profile itself. She also reveals that 94% of serious crashes are down to human error and so with fewer accidents and claims there will inevitably be a welcome improvement in risk and on premiums.

She concludes that with the reduction in motor incidents as well as in the number of traditional personal motor insurance policies, the related costs will also decrease as a result of safer roads. In her view, this should be seen, when it comes, as a truly sensational result of life saving technological innovation. Fong also concludes that CAVs are creating significant opportunities for the motor insurance world, but the assessment of risk very much depends on having the ability to capture and data insights to improve claims handling and to ameliorate the accuracy of risk assessments. So, insurers, carmakers and regulators are working hard together to be future-ready. It’ll happen in good time.