Autonomous Autos – The turkey vote

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Insurance industry has no choice but to resist.

• While the regulatory environment is moving towards an acceptance of autonomous vehicles far more quickly than I thought, I still think that the main resistance will come from the insurance industry, despite some studies indicating to the contrary.
• Research from Bloomberg Industries and FTI Consulting are rebutting the widely held opinion that autonomous vehicles would cause a huge decline in insurance industry revenues.
• Their position is that there will still need to be insurance of some kind although it is unlikely to be the drivers or the passengers that end up paying for it directly.
• While, I agree that the holder of the policy in an autonomous world may be different, I still think that the impact on revenues will be nothing short of catastrophic.
• So catastrophic in fact that I think that the insurance industry will resist autonomy for as long as it can as no rational entity will ever willingly participate in its own demise.
• Put simply: turkeys don’t vote for Christmas and they never will.
• Furthermore, I think that the notion that driver premiums will be fully made up by premiums paid by fleet owners to cover their machine drivers, does not take into account the basic of how insurance works.
• Despite its idiosyncrasies, Insurance is a very simple concept.
• There is a pool of users within which a fraction of them will have an accident requiring a pay-out far greater than the money that they put in.
• These accidents are sufficiently rare that the relatively small amount of money put in by everyone covers the cost of the pay-outs plus a margin for the administrator of the scheme.
• 94% of all accidents are caused by human error (see here) which means that having humans no longer behind the wheel should cause a 20 fold decline in accidents.
• Obviously, there will be other types of incidents where the machines fail for some reason but unless the machines can be shown to be much safer drivers than humans, they will never leave the lab.
• Consequently, in a world of autonomous driving, the accident and the fatality rate has to decline precipitously otherwise it will never be a reality.
• This means that there will be far fewer pay-outs needed and therefore, the market will demand a huge decline in the total premiums that are paid in.
• This is why I continue to expect that the insurance industry (the turkeys) will resist the adoption of autonomous driving (Christmas) for as long as it can.
• In fact, I would argue that it will have to radically shrink in an autonomous world, meaning aggressive consolidation resulting in pain and suffering all round.
• I still see no reason to change my view that the technology for autonomous driving will be ready long before the market is ready to receive it.
• This will mean that the laggards will have time to catch up with Waymo and Cruise (the leaders) and that vehicle makers will have plenty of options to chose from when they finally need to have an autonomous solution for their vehicles.
• I think that vehicle makers have far more pressing problems than autonomous driving to deal with as RFM research (see here) has found that electrification could cause vehicle demand to decline by 44%.
• I very much doubt that the industry would survive this in its current form meaning that massive consolidation and a focus on digital services will be needed.
• When it comes to this, I see BMW and Tesla out front but both still have substantial issues that make me very nervous.
• Both the automotive and insurance industries look to have tough times ahead of them and I would be nervous about an exposure to either of them.