KPMG says insurance industry to shrink 60 per cent by 2040
Published: October 23, 2015
Updated: July 24, 2018
Author: Luke Jones
CATEGORY: Industry News
Consulting firm KPMG has said that by the year 2040 the auto insurance industry around the world will be a shell of its former self. Indeed, the company claims that the industry will shrink by the tune of 60 per cent, which means it will only be 40 per cent the size it is in 2015.
While the year 2040 may seem a long way off, it is only 25 years and the professionals who are just starting in the auto insurance industry today will still be involved in 2040, and many may be in control of major insurance providers. Of course, if you are an investor in an auto insurance company then that is pretty bad news, but KPMG says there is also a silver lining to consider.
One of the chief reasons that the industry will shrink by more than half is because fatalities on the road will be fewer and even accident rates will drop dramatically. In a quarter of a century vehicles will be vastly safer and autonomous vehicles will ensure accident rates collapse at high rates the longer they are on the market. Again, while an autonomous vehicle was once a science fiction dream, the reality is merely half a decade away.
“Autonomous vehicles are poised to completely transform the auto insurance industry, and underlying market forces, including technology enablement, consumer adoption, and regulatory permission, are already aligning to enable mass change,” said Jerry Albright, principal in KPMG’s Actuarial and Insurance Risk practice. “The risk profile of vehicles is changing daily, and the subsequent drop in industry loss costs would reduce the size of the auto insurance market, trigger consolidation in the personal lines space, attract new competitors, and force dramatic operational changes within carriers.”
Based against the millennial generation, the firm says that accident rates will drop by 80 per cent by 2040, when the millennial generation will be aged between 44 and 58. Considering 90 per cent of automobile accidents around the world each year are caused by driver error, the age of the autonomous vehicle will be hugely important in reducing accident rates.
“Commercial lines could take a larger share, as the marketplace moves towards car sharing and mobility on demand services,” said Alex Bell, managing director in KPMG’s CIO Advisory practice. “As the vehicle makes more decisions, the potential liability of the software developer and manufacturer will increase too. In addition, losses covered by products liability policies will most likely increase because the sophisticated technology that underpins driverless vehicles will also need to be insured.”