Personal and commercial auto insurers will initially benefit from fewer accidents as the use of autonomous vehicles increase, however, they face long-term risks that will reduce the need for insurance in the coming decades, suggest analysts at Moody’s.
According to Moody’s, vehicles with Level 2 autonomy (partial automation, with constant driver supervision) are already available for the public from many automakers, with German giant Mercedes-Benz recently winning approval for Level 3 autonomy (hands-free driving under certain conditions).
The rating agency’s analysts expect that autonomous technologies will continue to improve, and Level 3+ autonomous vehicle sales will increase over the coming decade.
However, given that the average vehicle age in the US is just over 10 years, a shift in the vehicle fleet to full autonomy could take a long time.
Nonetheless, Moody’s anticipates that autonomous and other intelligent auto technologies will significantly reduce the frequency of accidents, which will boost insurer profitability.
Moody’s writes, “Although US auto insurers have posted weak earnings over the last two years because of higher auto repair costs and used vehicle prices, we expect that as intelligent technologies get better, insurer loss costs will gradually decline.”
Though, as advanced autonomous vehicles become prevalent, accident frequency is likely to fall precipitously over time, and could ultimately translate into significantly lower loss costs and premiums for auto insurers. Profits are likely to also decline, since most insurers set profit targets as a percentage of premiums.
The analysts state that regulators, lawmakers and courts will in turn have to determine how liabilities for accidents caused by autonomous vehicles are shared among automobile manufacturers, technology companies, drivers, and their insurers.
Meanwhile, Moody’s notes that some, albeit smaller, demand for specific auto-related insurance coverages such as product liability for automakers, could remain.
The firm’s analysts conclude, “Because changes to the auto insurance industry will be gradual, we believe innovative insurers will be able to adapt their operations and balance sheets to these changing circumstances.
“Fundamental credit strengths, including innovation, adaptability, and strong financial metrics, help offset long-term risks.”
