Self-driving cars are inevitably coming to market, and insurers have roughly a five-year window to get ahead of the curve says a P&C expert.
Paul Kovacs, President and CEO of Property and Casualty Insurance Compensation Corporation and author of the Insurance Institute of Canada’s Automated Vehicles Research Report, told an audience at the CIP Society Automated Vehicles Research Forum that self-driving vehicles will drastically – and rapidly – transform the auto insurance industry.
“I think those who really understand and are on top of the issue – they’re the ones who are going to come out the other end feeling good about the transformation,” he said. “People who don’t take advantage of the next five to 10 years, they’re the ones who are going to be constantly responding and reacting and in a very uncomfortable situation for an extended period of time.”
He explained the biggest disruptor for personal line insurers will come in the form of semi-autonomous vehicles, which he predicts will be widely available to consumers by 2025. Such cars still require a driver but come with safety features that can take over in controlled environments and even help prevent collisions.
According to Kovacs, this will throw the long-held statistic that drivers are responsible for 90% of accidents into doubt. “It’s not that driver error is going to disappear… but driver error will no longer be the overriding, dominant issue,” he said.
“All the evidence with conventional cars and the foundation of our business for decades has been one of the drivers or some combination of the drivers, that’s what’s in a collision.”
“With these vehicles, at least part of the time, there’s going to be a time when it will be the vehicle’s fault. And to figure that out as an industry is not what we’ve been doing. What are we looking for? How do we tell? Who do we go after?”
Semi- and fully-autonomous vehicles have been touted as a way to greatly reduce the number of fatal accidents that occur on the road each year. However, insurers need to be prepared to absorb much higher costs if and when collisions do occur, as the cameras and sensors used by the vehicles are expensive. For many carriers, this new technology could come with considerable sticker shock.
“Many people in the insurance industry have a strategy where you try to go with the lowest cost way to get repairs done,” Kovacs said. “Is that going to be the cost the industry is going to absorb?”
Lastly, Kovacs pointed to a steep decline in personal auto claims, forecasting a contraction from $126 billion to just $42 billion by 2040, due in part to a drop in vehicle ownership.
“The foundation of the industry is almost all the vehicles are owned by drivers. If that’s what the business is based on, it’s about to change. We need to have this really serious discussion company by company in the industry.”