The adoption of driverless or autonomous cars and other vehicles will completely transform the motor insurance sector, according to a report from Fitch Ratings.
The impact on reinsurance markets is as yet unclear, although many believe that a general shrinking of the motor insurance risk pool will occur, as accidents become less frequent and liability shifts from driver to manufacturers.
As insurers are forced to look elsewhere for profits, some who fail to adapt may disappear completely, Fitch believes. Other trends affecting car ownership such as the so-called sharing economy and telematics are also expected to shrink the motor risk pool.
But for reinsurers there could be one brighter spot, as cars and other vehicles become increasingly automated the software and equipment required to operate them becomes increasingly specialised and could become more at risk of cyber attack, Fitch Ratings explains.
Driverless cars are expected to rely on connected infrastructure, Fitch says, which could make them a target for hackers. Under proposals from the UK government insurers would not be able to exclude liabilities due to cyber risk, which could expose them to large losses and as a result may mean a greater need for reinsurance capacity to take this risk away from primary motor insurers.
“We believe that this element of policies is likely to be reinsured, leading to a further increase in demand for cyber reinsurance,” Fitch states.
A greater need for cyber reinsurance, which is unlikely to be a cheap risk to cover in the motor world where the potential for disaster could be high, may lead to upwards pressure on motor insurance premiums in the beginning.
Fitch says; “This could also mean that pricing of policies covering both conventional and automated driving could initially be higher, reflecting potential costs of cyber reinsurance.”
As the motor risk pool shrinks, due to automation, technology use and changing ownership and driving patterns, there could be a bright spot for reinsurers in providing the capacity to help motor insurers navigate the changing landscape, taking away emerging risks that become more prevalent as a result.