Bank of America (BofA) analysts further see autonomous cars as a potential game-changer in the insurance sector, with the capacity to improve insurance industry profitability by transferring the liability involved to commercial carriers instead of individual drivers. The discussion asserts that as far as autonomous cars are passed in the market, the accidents will be the responsibility of the automakers and software makers instead of human drivers. This paradigm shift may eliminate one of the key barriers to insurer profitability, since personal auto carriers generally make money on physical damage coverages and lose money on liability coverage.
Liability shift -How autonomous cars can change insurance profitability
Researchers at Bank of America, headed by Joshua Shanker, think that the move toward autonomous vehicles will fundamentally transform the way liability is structured in the insurance sector. It is pointed out by CBT News that currently, under the U.S. scheme, motorists are at fault for accidents, but with the use of autonomous vehicles, the fault will move to commercial carriers because there is no driver to pin down.
This move may eliminate the so-called obstacles to insurers’ profitability. Liability protection is a leakage industry to auto insurers, so the transfer of liability to automotive manufacturers and software engineers would be a rewarding financial decision. Still, the analysts specified that the U.S. tort system can pose risks that the personal lines industry would be happy to offload. The reform is a potential reshaping of the U.S. automobile insurance market, worth about $400 billion, as the business changes under autonomous driving technology.
Auto carriers would process claims and subrogation payments to newly liable, commercial-party insurers instead of shouldering the risk of loss on their own balance sheets. According to AInvent, this structure would enable insurers to continue their claim processing service, but they would leave the dollars to the technology and manufacturing lines of business that have created autonomous vehicles.
Why frequency improvements do not necessarily reduce costs
Although it is believed that autonomous vehicles will reduce the number of accidents caused by human factors, the authors of the Bank of America report express different opinions based on data. Although the frequency of car accidents has remained on the rise over the past hundred years, the severity of these accidents has been occurring at a rate that outperforms the gains in reduced accident rates.
Alternatively, as auto accident experts Malcolm Vanier and Armstrong convulsively mentioned, the rate of improvement of the frequency of car wrecks has considerably diminished in the last three to 4 decades amid various advances in safety technology. Such a tendency indicates that, despite autonomous technology minimizing the effect of human error-related accidents, the total cost effect may be relatively minimal through a rise in accident severity.
Getting the market fit for purpose: Shaping the market
The insurance sector is keenly following the progress related to autonomous mobility as companies such as Tesla and Waymo of Alphabet are launching autonomous taxi services. Goldman Sachs also assumed that the adoption of autonomous vehicles may result in a revolutionary decision to restructure the 400 billion auto insurance market in the U.S.
In reflection of this independence, Bank of America proposed an analysis that states that autonomous vehicles would allow an insurance company to actually benefit, even though the rate of accidents. The cost would be reduced since there would be a drastic reduction in human error. This transfer of liability responsibility to commercial carriers is a paradigm shift that would enhance the profitability of the insurers while still maintaining the capacity of the insurers in processing claims. As the technology of autonomous vehicles is developing, insurers have to expect that the number of claims will decrease, but they will be more technical.