The fall in road accidents brought about by smart car technology has been hailed by many as a major step in the motor industry, however, as a consequence, insurers could see premiums fall sharply as the vehicles take to the road.
A new study forecasts that autonomous vehicles, with the use of telematics technology, will lead to a decline in insurance premiums by as much as 40% between 2020 and 2030.
The study, commissioned by consultants to the insurance industry Ptolemus, said in 14 years there will be 380 million semi, highly or fully autonomous vehicles on roads worldwide.
In the decade preceding 2030, the penetration of active safety and advanced driver assistance systems (ADAS) functions and autonomous vehicles will reduce the number of accidents by more than 30%, leading to a significant reduction in insurance premiums.
The company has also warned that auto insurance companies competing without telematics offerings will be hurt by negative customer selection and growing imbalances in their portfolio.
Frederic Bruneteau, MD at Ptolemus, said: "The emergence of autonomous vehicles may appear as a remote risk today. However, this is a collision insurance companies must face and the magnitude of its impact is extremely high."
According to the company, the emergence of autonomous vehicles is irreversible, as several advancements have been done in the space over the last few months.
For example, in the report the company highlights the fact that the European Parliament’s ratification of the eCall mandate, now slated to start in 2018, allows third party eCall services coexist. This dictates that drivers do not have to have their hands on the steering wheel when automated functions are switched on.
The report also said that numerous vehicle makers including BMW, Daimler, Ford, GM and PSA have launched usage-based insurance (UBI) programmes with insurers or brokers.
Ptolemus said that the number of insurance companies launching telematics programmers has doubled worldwide over the last two years to 230.
In addition, it highlights that although the US will lead in the UBI space globally, the UK will also see the number of UBI subscriptions take off over the next five years.
By 2020, nearly 100 million vehicles globally will be insured with telematics policies and most car makers will have adopted UBI.
The number of vehicles insured with telematics will grow to nearly 50% of the world’s vehicles by 2030, generating more than €250 billion in premiums for insurers, according to the report.
Iwan Parry, head of insurance at Berkshire based Transport Research Laboratory (TRL), told CBR: "Some of the biggest hurdles to overcome before increasingly automated and fully driverless cars can become a reality lie in the legal and regulatory challenges around validation, approval and liability for vehicles that can take responsibility for the driving task.
"The insurance industry is key to developing and implementing frameworks to take advantage of the potential of autonomous vehicle technologies."
PROLEMUS estimates that for telematics service providers (TSPs), the UBI opportunity will be worth €3 billion globally by 2020.
It also said that the paradigm of insurance will evolve from cure to care. Protection will become the goal as insurers seek to avoid accidents altogether through tariff incentives, driver feedback and ADAS functions.
Looking specifically at the European motor insurance market, the firm has found stagnation in recent years.
In 2014, motor premiums in Europe were estimated at €128.6 billion, against €124.4 billion in 2012, according to Insurance Europe. Taking a longer perspective, premiums shows a positive trend, up 6% since 2004.
A spokesperson from British insurance company Aviva, told CBR: "Developments in autonomous driving are increasingly being seen in new cars – from autonomous braking to self-parking. Insurance is a key part of these developments and it is important that insurers work together to understand the impacts."
A recent Thatcham Research report has found that in the UK alone, premiums could shrink as much as 50% by 2025 and 80% by 2040. This is propelled by the fact the country is adopting future car technologies faster than other nations.
Allan Behrens, MD and principal analyst at Taxal, another consultancy, told CBR that in the UK, insurers and others are keen to engage in the smart car evolution.
He said: "Take Aviva for example. We have had connected (aftermarket) h/w in cars for quite some time in the UK, which links to the cost of one’s policy, so definitely no kickback. Anything that insurers can do to better understand risk is of benefit to them and the incentive to the user is lower premiums.
"Whether this be aftermarket add-ons or built into the car. The challenge with built-in (indeed also for the aftermarket) is that there needs to be a push on standards to allow broader use. Let us not forget data confidentiality and security."
In a 2011 study commissioned by Accenture, the company found that 49% of UK and US consumers were not comfortable using a driverless car.
Surprisingly, this number has not shifted over the years, and a December 2015 survey of 3,497 GB adults conducted by uSwitch.com also found that precisely 49% of British people refuse to be a passenger in a driverless cars and have deep concerns over road safety if there is no one behind the wheel.
In January, 11 British car insurance companies, including Aviva, Allianz, Zurich and Axa, entered a collaboration project led by the Association of British Insurers (ABI) and Thatcham Research, to understand and help shape the future of the car insurance.
The Aviva’s spokesperson said: "We are pleased to be working with the ABI, Thatcham and other insurers to help shape the future of automated vehicle use in the UK."
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