Brokers and insurance professionals who feel that autonomous vehicles are a distant concern and can wait to be addressed may want to reconsider, as some insiders believe that the shift has already begun to occur.
“In the U.S., personal auto on an underwriting basis has not made money once in the last five years in the industry as a whole. The commercial auto side has made money once in the same timeframe,” Joe Schneider, director, KPMG Corporate Finance LLC, told a Toronto audience Monday.
That shouldn’t come as a shock to traditional actors, who should already be engaging in introspective analysis based on these recent trends, he argued.
“It’s not as if people are jumping off from this huge cash cow business. What they’re actually doing is having trouble making money in a normal environment,” he said. “So how are they going to make money in a new normal environment?”
He foresees two possibilities for auto insurers: one is to adapt to the market opportunities that driverless cars will create, and the other is to find profit elsewhere. That deliberation will be necessary, though, since driverless cars will not only result in a “shrinking premium pie,” but there could be fewer coverages within that pie as well.
For those who choose to adapt, they may find a niche in commercial auto if drivers begin to abandon personal vehicles in favor of on-demand driverless car services. Otherwise, they may concentrate their efforts on manufacturers.
“There’s also product liability – consumers may say, ‘OK, my autonomous vehicle made a wrong left-hand turn, so I need to go back to the Original Equipment Manufacturer (OEM) or software manufacturer or whatever,” he said.
Those who hope to remain in auto should look to partner with the tech companies that are developing this technology, since they will control the data from the cars themselves, as well as their users.
“That role could be a situation where you buy a car and the insurance company is partnered with its manufacturer, so all the insurance premiums go to that insurance carrier,” Schneider said. “Or maybe the insurance carrier acts as a servicing agent for certain parts of a policy for somebody else.”
The other option is that insurers will need to expand into other business sectors “that aren’t fully insurance-related, but may crossover,” such as heavy data analytics.
“There are companies in the States that are investing in different distribution models, for example, because they know from an auto side that it’s going to be really hard,” Schneider said. “We’ve literally had clients approach us and say, it may be really hard to adjust to this new environment, so maybe we should just set up a shell business and start from scratch.”
Schneider encourages his clients to invest in non-traditional sources, and says that one of his clients who made some “homerun investments” has seen its benefits not just on the financial side, but also strategically. “They’re starting to see information flow better and new models of business,” he commented.
More than anything else, however, Schneider says the industry is now “inextricably linked” to the fast-paced innovation occurring in Silicon Valley, and failing to respond will result in entities “burning through a lot of money.”
“You really are heading towards becoming Kodak if you don’t do something about it,” he said. “Doing nothing is absolutely not an option.”