Autonomous vehicles pose huge risk to telematics

Published: July 24, 2016

Updated: July 24, 2018

Author: Luke Jones

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The talk of autonomous vehicles destroying the auto insurance industry is becoming as common as the line about how they will transform traffic safety. Both scenarios are likely true, and the latest to suggest driverless technology will disrupt insurance is KPMG.

The market researcher agrees with a market consensus that car manufacturers will take liability and may even offer their own coverage products. KPMG goes as far as to suggest that the auto insurance market will decrease to 40% of its current size, so a 60% decrease compared to 2015, within 25 years. The company says this is likely to happen because autonomous vehicles will reduce the number of accidents.

"As the car becomes more autonomous … we believe more of the liability will be absorbed by the manufacturer or the entity that has made the algorithms behind the brain of the car," said KPMG principal Jerry Albright. "At one point, does that become such a large portion that carmakers say, 'We will insure all these cars'?"

KPMG even argues that autonomous technology is not needed for manufacturers to create their own insurance products. Damage to the insurance industry could come sooner, from telematics devices. Long billed as a way for the industry to revolutionize in the face of autonomous cars, telematics could also bring problems.

Chiefly, if it is the manufacturers supplying the devices and data, as is being mandated in some regions, then those same manufacturers could develop their own policies.

Of course, 25 years is a long time and over the next quarter of a century the auto insurance sector can innovate to find solutions. Predictions are gloomy at the present, but there are potential avenues for insurance providers. Namely, striking early deals with auto manufacturers over a long term period to supply insurance for their autonomous vehicles.