Moody's: Auto Insurers Face Long Terms Challenges From Self-Driving Cars

Accident avoidance features in vehicles, such as automatic braking, adaptive cruise control, and lane departure prevention, are becoming more prevalent and will lead to lower accident frequency in the next five-to-ten years, a benefit for auto insurers. Longer term, self-driving cars could translate into significantly lower premiums and profits for insurers as the number of accidents declines dramatically, said Moody's Investors Service.

A new report from Moody's noted that while self-driving cars will likely force auto insurers to rethink their business models, widespread adoption of this technology is decades away, allowing insurers plenty of time to adapt. In the near term, accident avoidance technologies will have a more immediate, positive impact on auto insurers.

"Accident avoidance technologies are becoming more common in cars which should reduce the number of accidents and boost insurer profits," said Jasper Cooper, Moody's Investors Service Assistant Vice President. "However, auto insurers will also face higher auto repair costs from embedded cameras and sensors which are often located in or near bumpers."

Automakers like Ford, Nissan and Tesla, have announced plans to introduce self-driving cars in the next few years, which could initially be optional on luxury vehicles. "Widespread adoption of self-driving cars is still decades off, but it raises questions of what an auto insurer's role will be in a world with far fewer accidents," added Cooper. "Regulators, lawmakers and courts will have to determine how liabilities are shared among insurers, automobile manufacturers, and technology companies."

Moody's report noted that once self-driving cars are mainstream, accident frequency will fall sharply translating into significantly lower premiums and, consequently, lower profits for auto insurers. The industry impact could be dramatic over the very long term given that personal auto is the largest P&C insurance line in many countries including the US.

Despite the uncertainties self-driving cars cast over the auto insurance industry, insurers have time to innovate and diversify in order to stay competitive in a potentially narrower market. Moody's expects significant industry changes including consolidation, failure, and the potential rise of new entrants as self-driving cars have a transformative impact on the global auto insurance industry.

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