As recently as four years ago, if you mentioned ‘autonomous vehicles’ as a serious alternative to traditional private passenger automobiles, there were good odds that you would be laughed at or threatened. That has changed, and the impact could be more disruptive than first imagined.
It seemed straightforward at the time …
At the first Insurance-Canada.ca Executive Forum in the fall of 2013, Catherine Kargas, Vice President at MARCON, was presenting on the development of self-driving cars and the changes in mobility. She had data from a variety of sources and was about two thirds of the was through her presentation when she was interrupted mid-sentence by an attendee who was visibly upset by the construct.
“You should not be wasting our time with this,” the attendee said. “Driverless cars will never get on the road with other cars.” The attendee was convinced that cars needed drivers — especially in Canada, because of winter conditions.
Two weeks later, at another event, there was a different presenter and a different audience member who took serious umbrage and interrupted the speaker.
In both instances, the common wisdom of the majority of attendees was that this Jetsonesque scenario would never take hold, at least before most folks could retire.
But telematics had its own timeframe and scope
In hindsight, not only were these assumptions incorrect, they carried a warning for the insurance industry.
For the past 5 years, Donald Light, director at the analyst firm Celent, has been covering the impact of telematics & UBI on the insurance industry. His findings are not pretty.
Last fall, Light updated an earlier analysis, noting that automobile manufacturers – as well as Google – were pouring money into telematics and collision avoidance systems. The result would be lowered accident frequency and reduced claims payments.
Based on this, Light posited that there could be a 22.4% loss of automobile insurance premium revenues by 2030.
In addition, drivers will become less relevant in rate equations, and the determination of fault – and risk – will shift to the vehicles and the technologies that make the crucial decisions. And this is not happening in the distant future.
Data never sleeps
In the introduction to a new telematics report, the rating agency Fitch notes that
Recorded data could provide underwriters and actuaries with greater ability to understand and price risks, while data sharing between the manufacturer and the insurer will be vital for determining who is liable for the cost of compensation. We believe early movers in telematics technology could be at an advantage here as they have already established processes for handling the large datasets that will be needed.
The introduction of autonomous vehicles could also impact the busienss models well beyond vehicle insurance premiums (but related to other exposures).
Disruption can be contagious
Recently, CB Insights listed 20 industry segments – beyond auto insurance – that will be impacted (negatively or positively). Here are a few examples:
- Auto Repairs – become more dependent on software than mechanics’ traditional expertise with nuts and bolts. This could re-shape the number of repair shops and they types of work they do.
- Mass transit fleets – “Why wait around for a bus that will drop you off five blocks from your destination when a driverless car can … take you exactly where you want to go?” What would be the impact on insurers covering the buses?
- Auto Dealerships – With fleets of autonomous vehicles becoming available through ridesharing services (Uber is quite keen on this), an increasing number of users could elect to abandon personal ownership, reducing auto dealers’ exposure and eliminate personal auto insurance premiums entirely for defectors.
So, what did we learn today?
There are disruptors – including as Slice and MetroMile – creating new insurance models. And extant insurers are crafting new offerings to meet new exposures.
We expect that the innovation pace will accelerate and risk underwriters will continue to be challenged. To help, we will be focusing on strategies and tactics at the 2017 Insurance-Canada Executive Forum on 29 August 2017 in Toronto, with Matteo Carbone, Founder and Director, Connected Insurance Observatory as our keynote.
Stay tuned for more information. Meantime, we’d appreciate your feedback.