Martin Bixel - 16 Nov - 0 Comments
Driverless cars could lead to the end of car insurance as we know it; at least that is the conclusion of a Bank of England report on the impact that autonomous vehicles will have on insurers.
The Bank estimates that the market could shrink by as much as 40 per cent by 2040 if the adoption of self-driving cars proves faster than its baseline forecast, which says the market could be a fifth smaller in just over 20 years.
Cars represent the biggest line in general insurance with more than £15 billion of gross written premiums reported in 2015, meaning some insurers could face a significant loss of business as more cars become driverless.
The Bank of England said that while it was expecting a gradual adoption, it could not rule out a far swifter switch, which it warned had the potential to disrupt the motor insurance sector.
“Our current forecast is that the motor insurance sector will reduce in size, but that is likely to be a gradual shift over the next two decades,” it said.
A survey of insurance companies by the central bank found that expectations are for autonomous cars to comprise 80 per cent of new vehicle sales by 2040 as technology improves and the infrastructure to support them becomes more widely available.
As well as removing a large source of premiums, driverless technology will fundamentally alter the way cars are insured. The Bank said one of the main problems could be apportioning blame with insurers likely to go after vehicle manufacturers to recover their costs.
In addition, the Bank’s study, published as part of its latest quarterly bulletin, said there would be a battle between insurers and car manufacturers over who owned the relationship with a driver, with a commercial advantage to the winner, offering an opportunity to sell products to the consumer.
Against the downsides for insurers an expected fall in accident rates will reduce the rate of payouts. More than 90 per cent of road traffic collisions result from human error and the accident rate is forecast to fall sharply.
By 2030, the Bank is projecting a 30 per cent fall in all types of car accidents. Despite this, Bank officials do not foresee any big drop in the amount of capital insurers must set against their automotive businesses as injury claims present a long-tail risk, with actions taking a long time to settle, often followed by several decades of payouts.