NEW YORK — Seven of 10 auto insurance companies are unprepared to deal with self-driving vehicles, according to a new study from KPMG, a leading audit, tax and advisory services firm.
The study, Automobile Insurance in the Era of Autonomous Vehicles, surveyed senior U.S. insurance executives whose companies account for a total of $85 billion in auto insurance premiums and found that few of them have taken any action to prepare for self-driving cars, mainly because they believe these vehicles will arrive too far into the future to worry about.
According to KPMG, 84 percent of the executives surveyed don't think autonomous vehicles will have a significant impact on their business until 2025, and 42 percent feel that change is still six to 10 years off.
Overall, 74 percent of the executives surveyed say their companies are not ready to insure autonomous vehicles.
"The disruption of autonomous vehicles to the entire automotive ecosystem will be profound, and the change will happen faster than most in the insurance industry think," said Jerry Albright of KPMG's Actuarial and Insurance Risk practice in a statement. "Technology is making cars safer, impacting underwriting practices, claim frequency and severity as well as auto premiums.
"To remain relevant in the future, insurers must evaluate their exposure and make necessary adjustments to their business models, corporate strategy and operations."
At this point, only 29 percent of respondents feel that they are personally very knowledgeable about self-driving cars, and even though they acknowledge an expected decline in the number of claims and premium rates, just 10 percent say they have any sort of plan in place to deal with the impact this technology will have on their business.
As previously reported by Edmunds, since the vast majority of vehicle crashes are the result of human error — 93 percent of them, according to NHTSA — when technology takes over for human decision-making, insurance rates for individual drivers are expected to drop significantly.
According to an Insurance.com report, most insurance companies already offer discounts for safety technology, including electronic stability control and adaptive cruise control, so it's not a stretch to assume that as more automated features are developed premiums could drop even further.
There will still be a need for liability coverage, of course.
But as a 2014 RAND Corporation study pointed out, even though "currently, the driver is generally considered exclusively responsible for control of the vehicle," with the adoption of autonomous vehicles that responsibility is likely to shift to manufacturers and component suppliers.
And although it may seem that automakers will simply pass on their increased cost to consumers, RAND noted that "while the victims in these circumstances could presumably sue the vehicle manufacturer, product-liability lawsuits are more expensive to bring and typically take more time to resolve than run-of-the-mill automobile-crash litigation."
Concluded Joe Schneider, a director at KPMG Corporate Finance: "Assuming consumers demand lower premiums to reflect fewer accidents, there is the possibility of frenzied competition as firms attempt to maintain premium volume to cover operational expenses and market share. This irrational pricing behavior could result in a dangerous downward underwriting spiral for the broader industry."
With automakers like Audi, BMW, Ford, GM, Mercedes-Benz, Nissan, Tesla, Toyota, Volkswagen and Volvo — not to mention competitors like Google and Apple — making strides on autonomous-vehicle technology, it's clear that insurance carriers will need to step up their game to keep pace.
Edmunds says: Consumers will be watching insurance rates carefully as vehicle automation continues to advance.