Consolidators: Classic Collision Adds Third Location in Minnesota
Autonomous vehicles will shift driving risk to the OEMs, significantly reducing the need for personal auto insurance.
If autonomous vehicles live up to their lofty promises and eliminate the vast majority of collisions, the technology will dramatically reshape the autobody business. But collision repair isn’t the only industry that could take a hit.
Self-driving vehicles could wipe out 71 percent – or $137 billion – of auto insurers’ business by 2050, according to new research by KPMG.
In “The Chaotic Middle: The Autonomous Vehicle and Disruption in Automobile Insurance,” KPMG concludes that the pace of change in driverless technology has accelerated, and the firm’s actuarial model illustrates a more severe blow to the insurance industry than predicted in KPMG’s previous 2015 study.
The new study also points to an increasing need for new types of insurance products.
“Insurance companies will have to make important strategic and tactical changes sooner than anticipated to navigate through this turbulent transformation of the industry,” said Jerry Albright, principal in KPMG’s Actuarial and Insurance Risk practice. “New business models bring about a decade or so of a ‘chaotic middle’ as insurers adjust their strategies and operations as autonomous vehicle technologies significantly deplete the need for personal auto insurance.”
Triad of Disruption
According to KPMG, three major forces are disrupting the $247 billion auto insurance marketplace:
- Autonomous technology is making cars increasingly safer, leading to a potential 90 percent reduction in accident frequency by 2050.
- Automakers will assume more of the driving risk and associated liability, and have new opportunities to provide insurance to car buyers, taking market share away from traditional insurers. KPMG estimates that by 2050 there will be a significant increase in products liability insurance to 57 percent of total auto losses in order to cover the autonomous technology in vehicles, and a considerable decrease in personal auto insurance to 22 percent of total auto losses.
- The rapid adoption of mobility-on-demand is quickly translating into the need for less personal auto coverage, with the use of fleets requiring commercial auto insurance.
“Insurance companies are varied in their level of preparedness for this disruption and many have taken limited action to face this challenge,” said Joe Schneider, managing director at KPMG Corporate Finance. “As a result, auto insurers may choose to branch out into home-related products, or other commercial coverage, to benefit from diversification.”
The wild card for autonomous technology has been the surge of “smart money” from venture-capital firms and other sources, KPMG noted.
“The infusion of capital is boosting the development of autonomous capabilities and related business models, thereby accelerating the pace at which highly automated vehicles will hit the market,” added Schneider.