The founder and manager of the DaVinci Institute, Thomas Frey, claimed that self-driving cars will affect 128 different markets and “car insurance and financing industries will probably die.” Although Frey’s claim is exaggerated in the short-term, it is a fact that Frey’s day may come sooner than we expect.
It has been known for decades that one of the main goals of driverless cars’ is to reduce ‘the human factor’ and accidents caused by human errors. The founder of the electric car giant Tesla, Elon Musk, shared the first remarkable figure a few months ago, explaining that the autopilot feature would cut traffic accidents by half. The US National Highway Traffic Authority backed Musk, stating that Tesla had used the first autopilot feature in 2015 since then, crash rate is dropped by 40 percent, which makes auto insurance industry kind of irrelevant and unnecessary.
Auto insurance fees will decrease even further
According to KPMG’s research, the personal auto insurance industry is expected to shrink by 40 percent in the next 25 years. Because manufacturers like Tesla and Ford are reducing the accident rate of drivers, which forces insurance companies to reduce their offers’ prices. The fact that Tesla sells its vehicles in Asia bundled with auto insurance also contributes to many third party insurance companies’ death in the near future.
Yet another KPMG report reveals that, motor vehicle insurance accounts for 42% of Property and Casualty insurance, which is a $200 billion market in the US alone.
Of course, it will and should be discussed what might be the cause of crash for self-driving cars but, “Under the current structure that we have today, it is the manufacturers who will bear the liability in that situation because the driver isn’t going to be doing anything,” Geoffrey Drake, a partner at King & Spalding’s Tort Litigation & Environmental Group directing the firm’s Autonomous and Connected Vehicles initiative, told Business Insider ¹.
Moreover, the reports that self-driving vehicles will affect the insurance industry is not limited to these. Insurance companies such as Cincinnati Financial and Mercury Genera have stated in official documents that this transformation will threat their current business models. McKinsey & Co. Research suggests that this transformation will reduce traffic accidents in the United States by 90 percent. We have also previously shared that autonomous cars will create new insurance models such as usage-based insurance (pay as you go / pay as you drive).