While autonomous vehicles (AVs) are expected to fundamentally reshape the auto insurance market in the long term, a new report from Fitch Ratings says the credit impact of autonomous vehicles on auto insurers is likely to remain modest over the next decade.
Personal auto insurance is the largest single insurance category, accounting for approximately 37% of U.S. property/casualty net written premiums, and combined with commercial auto insurance accounts for approximately 44% of the industry’s net written premiums, according to the ratings agency.
Given this scale, Fitch said even small changes in performance, pricing or risk dynamics could have an impact across the industry.
As a result, self-driving cars reportedly create contradictory dynamics for insurance companies, as advanced safety features reduce accident frequency and severity, while repair costs rise significantly due to complex sensors and electronics requiring specialized labor.
The scope of liability is also shifting from driver fault to product liability, potentially shifting traditional auto insurance premiums onto manufacturers, software providers and sensor suppliers.
“Depending on the degree of autonomy, claims that were traditionally fully covered by auto insurance may now impact product liability and may involve the automaker, designer, parts supplier, and vehicle owner or operator. The lack of established legal precedent increases risk, leaving liability and coverage decisions vulnerable to volatility,” Fitch explains.
The rating agency added that while there is “considerable uncertainty” about the adoption of self-driving cars, the technology’s eventual impact on the structure of the car insurance market will be significant and that in the long term, self-driving cars will “fundamentally reshape” the car insurance market.
Gerry Glombicki, Senior Director at Fitch Ratings, commented: “While autonomous vehicles have moved beyond the proof-of-concept stage, widespread adoption will take considerable time due to high costs, fragmented regulations and consumer preferences.
“The average vehicle age in the United States is currently close to 13 years, so fleet turnover takes time.
“Insurers with a diversified product and geographic portfolio will perform better than those that focus solely on auto insurance and operate in certain regions.”
