Insurance agents and brokers who feel that autonomous vehicles can wait to be addressed may want to reconsider, as some insiders believe the shift has already begun.
“In the US, personal auto underwriting has not made money once in the last five years in the industry as a whole,” says Joe Schneider, director at KPMG Corporate Finance in Chicago. “The commercial auto side has made money once in the same timeframe.”
Traditional players should already be engaging in introspective analysis based on these recent trends, he argues.
“It’s not as if people are jumping off from this huge cash cow business. What they’re actually doing is having trouble making money in a normal environment,” he says. “So how are they going to make money in a new normal environment?”
He foresees two possibilities for auto insurers: adapt to the market opportunities that driverless cars will create, or find profit elsewhere. That deliberation will be necessary, though, since driverless cars will not only result in a “shrinking premium pie,” but also potentially fewer coverages within that pie.
Those who choose to adapt may find a niche in commercial auto if drivers begin to abandon personal vehicles in favor of on-demand driverless car services. Otherwise, they might concentrate their efforts on manufacturers.
“There’s also product liability – consumers may say, ‘OK, my autonomous vehicle made a wrong left-hand turn, so I need to go back to the original equipment manufacturer or software manufacturer,” Schneider says.
Those who hope to remain in auto should look to partner with the companies that are developing this technology, he suggests.
“That role could be a situation where you buy a car and the insurance company is partnered with its manufacturer, so all the insurance premiums go to that insurance carrier,” he says. “Or maybe the insurance carrier acts as a servicing agent for certain parts of a policy for somebody else.”
The other option is that insurers will need to expand into other business sectors “that aren’t fully insurance-related, but may crossover,” such as heavy data analytics. Schneider encourages his clients to invest in non-traditional sources.
“There are companies in the States that are investing in different distribution models, for example, because they know from an auto side that it’s going to be really hard,” he says. More than anything else, however, Schneider says the industry is now “inextricably linked” to the fast-paced innovation occurring in Silicon Valley, and failing to respond will result in entities “burning through a lot of money.”
“You really are heading toward becoming Kodak if you don’t do something about it,” he says. “Doing nothing is absolutely not an option.”
