More Opportunities than Challenges for Insurers in an AV World
Insurers should have no concerns about opportunities in the autonomous vehicle world because there will be plenty of new revenue streams to look forward to.
That’s the view of Jess Hurley, EIS’ expert on autonomous vehicle insurance as its property and casualty market lead. She sees more opportunities than challenges ahead for insurers in an automated driving world.
Speaking to TU-Automotive, Hurley accepted that in the early roll-out of autonomous vehicles there will be bumps in the road. She explained: “In the early stages you will see new stories about AV accidents. However, I see AV insurance falling into four structures. Firstly, there’s the cyber-security area where there could be revenue streams from premiums and then there’s the infrastructure premiums from, say, the cloud infrastructure. There’s a wireless infrastructure for getting information to the vehicle and you’ll have a premium for that.
“Then there’s hardware premiums and software too where software companies are on the hook to provide certain levels of service. Finally, there’s the traditional premiums that cover third-party liability like if you scratch somebody, etc. These are the areas where insurance companies are going to see opportunities in the next 25 years. There will be a tipping point in about another 10 years where insurers will see the premiums they are losing from normal auto insurance are going to be replaced by autonomous vehicle insurance.”
Naturally, Hurley sees the commercial robo-taxi sector as leading the way in driving automated vehicles into the mainstream transportation market. She added: “When you get to an autonomous vehicle, the balance of the liability shifts from the individual, or the company that is operating the vehicles, to the car manufacturer and, in some cases, to some of the OEM’s partners that are supporting the vehicle in terms of critical communications and information. So, you start collecting money from a different party and you are, effectively, insuring the OEMs. The other thing is, and I very much see this as a commercial issue, is the cyber-insurance, protecting the vehicle from any kind of acts of take-over or any kind of data extraction. This is a huge issue for the commercial carriers with AVs.”
Automaker takeover?
Hurley is less concerned for the insurance market in the face of some automakers, such as Volvo, taking over the front-end insurance risks of autonomous vehicles they build. She said: “Think of it like reinsurance today – OEMs might underwrite the basic functions but they are not insurance companies. They don’t know how to manage reserves, they don’t have the infrastructure behind them to deal with claims. They may have the physical infrastructure to deal with the mechanical issues but the claims aspects to it are all the preserve of day-to-day insurance company work.
“What you will see is a shift in who is collecting the insurance premiums. If the OEMs are going to cover it they will bury it in the cost of the car. I see big operators like Zipcar taking on the upfront liability but then looking towards the big financial institutions and insurers to underwrite that risk as the backend. Probably the best thing they could do would be to actually buy and insurance company that they could staff up and run. However, to get into another space, like an insurance space, represents a pretty big hill to climb.”
Hurley also sees a widening gap between the transport demands and, therefore, business models applied of cities and those of more rural areas. She explained: “The market could become more B2B than B2C yet, if you look out at the countryside, the corporate model is not sustainable, whereas in New York or Denver and London, it would be sustainable because the density of population will be able to support it. We see it already if you go to a major city and don’t trip over three scooters lying down outside a train station, something’s wrong!”
— Paul Myles is a seasoned automotive journalist based in Europe. Follow him on Twitter @Paulmyles_
One plank in Volvo’s showroom floor has been its ability to investigate collisions involving its products with its in-house crash investigation team, feeding back famously into its R&D and next generation with real-world safety measures. To do this in its home market, at least when I was there, Volvo insured every car sold, neatly also retaining some valuable use and misuse information, maintaining repair standards, controlling costs, and ensuring correct parts were used through its dealer/workshop subsidiaries.
If they have maintained that model intact since Sweden joined the EU, then I suggest that Volvo is better placed than most OEMs – and maybe insurers – to deal with end-to-end insurance risks of autonomous vehicles. There are no guarantees of success in this game though!