Autonomous vehicle technology could shrink the auto insurance sector by 71 percent or $137 billion by 2050, according to new research by KPMG. The big accounting and consulting firm extended its actuarial model by 10 years to 2050, finding that the pace of change has accelerated, pushing projections that illustrate greater declines to the insurance sector than KPMG’s previous 2015 study. It also shows an increasing need for new types of insurance products.

The report, titled The Chaotic Middle: The Autonomous Vehicle and Disruption in Automobile Insurance, reasons that there is a “triad of disruption” in the auto insurance industry. The three major forces disrupting the current $247 billion premium auto insurance marketplace are listed as:

• Autonomous technology is making cars increasingly safer, leading to a potential 90 percent reduction in accident frequency by 2050.
• Auto manufacturers will assume more of the driving risk and associated liability, and have new opportunities to provide insurance to car buyers, taking market share away from traditional insurers. KPMG estimates that by 2050 there will be a significant increase in products’ liability insurance to 57 percent of total auto losses in order to cover the autonomous technology in vehicles, and the firm expects a considerable decrease in personal auto insurance to 22 percent of total auto losses.
• The rapid adoption of mobility-on-
  demand is quickly translating into the need for less personal auto coverage, with the use of fleets requiring commercial auto insurance.

“Insurance companies are varied in their level of preparedness for this disruption, and many have taken limited action to face this challenge,” Joe Schneider, managing director at KPMG Corporate Finance, said in a written statement. “As a result, auto insurers may choose to branch out into home-related products, or other commercial coverage, to benefit from diversification.”

By 2024, the majority of travel within cities and surrounding suburbs is expected to be on-demand rather than with a personal vehicle, and by 2035 it is expected to be the new normal in transportation. As a result, products’ liability coverage and other new types of insurance are expected to pay a greater share of claims resulting from roadway accidents. Cyber risk is a good example of a new type of risk associated with the era of driverless cars, and market participants are building new products to cover the potential hacking of autonomous vehicles.

The auto insurance industry is further disrupted by the surge of “smart money” generated by a variety of sources including venture capital firms. As Schneider put it: “The infusion of capital is boosting the development of autonomous capabilities and related business models, thereby accelerating the pace at which highly automated vehicles will hit the market.”

Mike Consol (m.consol@irei.com) is editor of Real Assets Adviser.