Credit Ralph Barrera/Austin American-Statesman , via Associated Press
AS autonomous driving technology advances, perhaps the most notable benefit is the promise of a striking reduction in accidents.
âWe think that over the next 20 to 25 years, the number of accidents will fall by 80 percent,â said Jerry Albright, principal of actuarial and insurance risk practice at KPMG, the consulting firm that released the report. âFrom a consumer perspective, this is a very good thing. Youâll see improved safety, fewer deaths.â
At Progressiveâs investor relations meeting in 2013, John Curtiss, the companyâs auto products development chief, said the industry had grown 90 percent over the previous 30 years, mostly because more vehicles were on the road. More recently, Mr. Albright said that most insurance companies had problems turning a profit over the last six years and that the changes autonomous vehicles would bring were sure to make profitability more elusive.
At risk is the lifeblood of the industry â $ 200 billion in premiums that the insurers collect every year from policyholders.
According to KPMGâs report, the insurance industry could contract by as much as 60 percent by 2040 as accident damage payouts and premiums fall.
Even Warren E. Buffett, whose Berkshire Hathaway conglomerate owns Geico, has said that widespread adoption of autonomous technology poses âa real threatâ to the industry.
âThis technology will be disruptive to the insurance industry,â Mr. Albright said. âThere will be winners, and there will be losers. There will be fewer companies than there are today. But the question is, Who will survive?â
It could even result in fewer cars for companies to insure. A recent report from Barclays Capital said that autonomous technology would lead to a 40 percent decline in sales and a 60 percent drop in the number of cars on the road.
Already, the changes are happening. Devices like automatic braking, adaptive cruise control (it adjusts the carâs speed to match that of the traffic ahead) and sensors that automatically keep the car from drifting outside a lane are available. And this does not include the fully autonomous cars that companies like Google and automakers have been testing for years.
Insurance companies have, accordingly, been examining potential changes to the current business model.
KPMGâs report envisions a future in which insurers will depend more on commercial accounts for revenue as companies offering ride-sharing and mobility on demand become more prevalent. Individual policyholders will decline as households get by with one car, or no car at all.
And as the cost of covering losses declines, so will the premiums insurers collect. âCurrently, the personal auto sector accounts for almost $ 125 billion in loss costs,â the report said. âBy 2040, we believe this sector could cover less than $ 50 billion in loss costs.â
State Farm has been working with Ford, the University of Michigan Mobility Transformation Center and the Insurance Institute for Highway Safety, among others, to figure out how best to adapt to whatâs coming.
âAutomated technology has been a major industry issue,â Chris Mullen, director of State Farmâs technology research program, said in a telephone interview. âItâs been what everyone is talking about, so as you can imagine, we have put quite a bit of focus on understanding it.â
Part of that understanding, she said, had been accepting that the changes had already begun â and are happening faster than many experts had predicted several years ago.
âA lot of what is disturbing the industry is the pace at which this technology is expected to come,â she said. âState Farm has responded to changes in our industry throughout our existence. Changes are coming again, and weâre investing the resources to understand how these changes will affect the industry.â
Ms. Mullen said that the changes to which insurance companies had to respond in the past included the advent of seatbelts, collapsible steering columns and airbags. Those devices changed automotive safety, but not until car insurance had been around for a few decades.
âThis is not just about technology,â she said. âThere are issues of behavior that need to be understood â how will people react to these new systems? Cybersecurity is another issue thatâs been at the forefront of this.â
Mr. Albright said that devising a strategy to face the new world of auto insurance would be as expensive for insurers as it was tricky.
âIt will take time and cost billions of dollars,â he said. âThereâs enormous skepticism in the insurance industry about the pace that changes will come, but theyâre going to come sooner than people think.â
Part of the problem, Joe Schneider of KPMG pointed out, was that insurance companies rely on past behavior to predict the future. What happens when there is little experience to base decisions on?
âThe insurance industry is historically data-driven,â he said. âThereâs been an actual person behind the wheel of every car for 100 years, and all of a sudden saying the rules are going to be different going forward, thatâs a very difficult situation to wrap your head around.â