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The potential of automated vehicles to significantly change the insurance industry

Automated vehicles will have a transformative impact on the insurance industry. It is crucial for (re)insurers to recognise the opportunities and challenge.
Aerial view the overpass at night, Shanghai China.

Self-driving automated vehicles (AVs) are gaining traction. As their rate of adoption continues to increase, AVs have the ability to both reduce the frequency of accidents and increase efficiency in areas such as energy use, waiting times, and costs. Consequently, the motor insurance industry, which provides recourse to individuals involved in road traffic collisions and forms an important component of the broader UK social security system, will undergo an important transformation. 

Sam Tiltman, Marsh UK Sharing Economy and Mobility Industry Practice leader, participated in a panel session at the Connected and Automated Mobility (CAM) Innovators day on 13 March, 2024. Topics included the role that insurance can play as adoption of AVs increases in the UK. 

Motor insurance: A leading product class

Currently, motor insurance could be considered a personal liability solution for drivers operating their vehicles. In the UK, over 94% of motor crashes are a result of human error. The principal basis for UK motor insurance is to provide cover for unlimited third-party liability for bodily injury and various levels of cover for third-party property damage. However, occupants of AVs will not be held liable for incidents where vehicles are both defined as an authorised AV and running in autonomous mode. This stance was confirmed by the Law Commission in 2022 and forms one of the core principles of the UK AV Bill. Therefore, AVs have the potential to significantly change the [re]insurance industry for ‘motor’ and ‘auto’ insurance – a leading product class within the UK containing a gross written premium (GWP) in excess of £12.2 billion.

Globally, there are over 1.2 billion vehicles on the road – with over 40 million in the UK alone. The rise of AVs has the potential to alter the business-to-consumer motor insurance market worldwide, which currently consists of hundreds of millions of individual policies. This transformation will consolidate the highly distributed marketplace into a large, aggregated risk. This could present both a significant risk factor for the insurance industry and a great investment opportunity for "Forward-thinking insurers that can embrace this change,” Tiltman stated.

The role of insurance

Historically, the insurance sector has played a vital role in supporting innovation across a myriad of emerging industries. Investment is required to become part of the solution and, ultimately, one of the key enablers. Those who actively support and enable AV adoption are likely to be future winners in the (re)insurance industry, said Tiltman. 

During the transition period, as AV uptake becomes widespread within society, (re)insurers will require novel, sophisticated data capabilities to fully understand how to balance key categories. The multi-modal nature of autonomy could see industrial, logistical, and public transportation systems the first to shift, disrupting traditional insurance in these sectors sooner than others. 

Rapid growth within the AV sector is crucial to the formation of mobility (including AVs) as a new category of insurance – similar to the emergence of cyber insurance around 10-15 years ago. Insurance is an important risk management tool and the process of sourcing and administering it can greatly help with broader risk management strategies. Additionally, this could also help manage and reduce less-insurable risks, such as investment, brand, reputation, and trust.

A changing industry

The rise of AVs will bring about “Significant changes that have the potential to terraform the insurance industry,” said Tiltman. It is crucial for (re)insurers to recognise the opportunities and challenges that lie ahead, such as new ways of underwriting risks, technological developments, new risk mitigation strategies, and product and service innovation. 

The GWP associated with ‘motor’ and ‘auto’ insurance in many markets make it a prime target for disruption. As adoption of AVs increases, (re)insurers must ensure they take proactive steps to navigate this new era of mobility.

For further discussion on the role of insurance within AV adoption, contact your Marsh adviser