While autonomous vehicles (AVs) are expected to fundamentally reshape auto insurance markets over the long term, a new report from Fitch Ratings says their credit impact on auto insurers is likely to remain modest over the next decade.
According to the rating agency, personal auto insurance is the single largest line of insurance, representing approximately 37% of the U.S. property/casualty net written premiums, and, when combined with commercial auto insurance, represents approximately 44% of industry net written premiums.
With this scale in mind, Fitch said that even modest shifts in performance, pricing, or risk dynamics can reverberate across the industry.
Thus, AVs reportedly present conflicting dynamics for insurers, as advanced safety features reduce accident frequency and severity while repair costs rise significantly due to sophisticated sensors and electronics that require specialised labour.
The liability landscape is also shifting from driver fault toward product liability, potentially displacing traditional auto insurance premiums to manufacturers, software providers and sensor suppliers.
“Depending on the level of autonomy, claims that were traditionally fully covered by auto insurance can now impact product liability and potentially involve car manufacturers, designers, parts suppliers, as well as owners or operators of the vehicle. The absence of established legal precedent heightens risk, leaving liability and coverage decisions vulnerable to volatility.” Fitch explained.
The rating agency added that while “considerable uncertainty” surrounds AV adoption, the technology’s eventual impact on auto insurance market structure will be substantial, and AVs will “fundamentally reshape” auto insurance markets over the long term.
Fitch Ratings Senior Director, Gerry Glombicki, commented, “While AVs have moved beyond proof of concept, widespread adoption will take considerable time due to high costs, regulatory fragmentation, and consumer preferences.
“The current average U.S. vehicle age is almost 13 years, so it takes time for the fleet to turn over.
“Insurers with diversified products and geographic portfolios will fare better than those concentrated solely in auto insurance and ones that operate in certain geographies.”
