Auto premiums account for close to half of global non-life insurance - but cars are about to get much, much safer. Electric cars will be safer than gasoline ones and driverless cars are likely to be safer still. At a time of excess capital and a shortage of growth opportunities, the insurance industry is unprepared for the challenges that will result from this wholesale reduction in risk.
Although cars have been getting safer for a long time, about 3,400 people are still killed each day in auto accidents around the world - many times the numbers killed in world's wars. However, a combination of changing demographics, new designs and the latest technology are likely to radically improve car safety.
Perhaps counterintuitively, higher population densities are related to fewer traffic deaths as this chart from the Economist demonstrates. As population growth and urbanisation run their course, we can expect people to spend more time sitting safely in traffic jams.
At least three design features of electric cars make them inherently safer than gasoline cars – the heavy batteries in the floor (which lower the centre of gravity of the vehicle); the big front crumple zone (due to the lack of large engine) and the lack of large quantities of gasoline.
A raft of new safety features are being integrated into high end cars which are then quickly finding their way into mass market models. For example: adaptive cruise control maintains a safe distance between cars and breaks to avoid accidents; rearview cameras and radars provide collision warnings when reversing and lane departure detectors alert drivers who may have fallen asleep.
The most popular electric car - the Tesla S - incorporates all these features and more. By the end of this year, owners will be able to download a software update that will enable the autopilot to control the steering wheel and drive the car on highways without input from the driver. Already, Google has driven over a million miles in its fully autonomous prototypes while other technology companies are running pilot programmes in places like Santa Clara University.
The chart below (and the two subsequent ones) come from a recent paper from KPMG. It projects a near future of radically different types of car.
These improvements could cause the personal auto sector could shrink to 40% of its current size. This figure includes the reduction in accident frequency as well as factors such as an increase in the average cost of claims (due to added the complexity of vehicles) and a different mix of insurance (due to the increased role of product liability insurance).
When KPMG asked insurers how prepared they were for driverless cars, the answer was clear.
Posted: Monday, September 28th, 2015