source from：Financial Times Asia Edition 2016-10-04

Insurance

Tech advances will take toll on car premiums, research warns



Self-driving cars are expected to reduce claims costs in the future

Insurers should brace themselves for a drop of up to 80 per cent in car insurance premiums as technology disrupts one of the mainstays of the industry, according to research from Boston Consulting Group and Morgan Stanley.

A combination of driverless cars, better use of data and more car sharing will push down the cost of motor insurance dramatically over the next 25 years, the study found.

Motor is one of the most important markets for the global insurance industry. It accounts for 700bn dollars of premiums every year, or 42 per cent of total property and casualty insurance.

Miguel Ortiz, senior partner at Boston Consulting Group, said: “You have got a cocktail of different effects, from speed controls to connected technology and autonomous features.

“The industry won’t feel the heat for the next five years or so but then things will accelerate,” he said, adding that some markets face an average decline of 4 per cent a year in the coming decades.

By cutting the number and severity of accidents, autonomous vehicles are expected to reduce claims costs and so the size of premiums. More car sharing would cut the number of vehicles that need insurance, while new regulations could speed up the process.

Insurers in developed markets are most at risk, according to BCG and Morgan Stanley. Motor insurance premiums in the US are predicted to fall from 221bn dollars a year to 74bn dollars by 2040 in the most severe scenario. In the UK, premiums are forecast to drop from 24bn dollars to 6bn dollars. The impact in emerging markets such as China is expected to be offset by more general growth in car use.

Insurers say they are preparing for the changes. “I find it difficult to use the phrase ‘pessimistic’ if we’re talking about safer roads,” said David Williams, technical director at Axa. “If accidents happen less and cost less, premiums will come down. The problem is quantifying it. I think the impact will be really gradual and those insurers who embrace it will be able to deal with it more easily,” added Mr Williams, who also chairs the Association of British Insurers’ research group on driverless cars.

However, he cautioned that the transition to driverless technology would not be smooth. “The bit we haven’t got to grips with is that accidents will be fewer but, as people switch between autonomous and fully controlled vehicles, there could be more larger claims . . . If the car is doing a lot of the work for you, you’re going to be practising your skills less.”

BCG and Morgan Stanley said technological advances would also change the way insurance is bought. While 80 per cent of policies are bought by consumers, they expect commercial buyers such as carmakers to dominate the market by 2040.