auto insurance in the area of autonomous vehicles - … insurance in the era of. ... insurance in...

24th Annual Insurance Issues Conference

Auto Insurance in the Era

of Autonomous Vehicles

© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.

1

Automobile Insurance in the Era ofAutonomous Vehicles

KPMG U.S. recently published two documents on Automobile

insurance in the era of autonomous vehicles

Video: Driverless vehicles

This presentation is based on the publications from KPMG LLP (U.S.).

https://www.youtube.com/watch?v=P1tfOeChenQ


2

Agenda

8 elements for transformation

4 phases to a new normal

Potential impact on insurance

A new insurance landscape

Call to action

Alignment for Mass Change

Timing

Implications for InsurersFuture State

What Now?


3

Alignment for Mass ChangeEight Key Elements for Transformation

Interactions between elements are dynamic

Advances in one area may act as catalyst for

progress in others

Integrity of Technology

Infrastructure Availability

Legal Responsibility

Mob

ility

Se

rvic

es


4

Alignment for Mass ChangeIntegrity of Technology

Foundational technologies already

exist and will continue to strengthen and integrate

Pervasive Sensors

GPS

CamerasSensors

$ $

$

$$

$


5

Alignment for Mass ChangeCapability Accessibility

Source: NHTSA, KPMG LLP (U.S.)’s Self-Driving Cars: Are We Ready?, Automotive News, New York Daily News, Reuters, Bloomberg and Company websites.

Google100% autonomous prototype driven car

(Launched)

BMWAdaptive

cruise control

(Launched)

VolvoTraffic jam assistant

(Launched)

AudiAdaptive

cruise control

(Launched)

CadillacSuper Cruise

(2017)

FordAdaptive

cruise control

(Launched)

Mercedes - Benz

Traffic jam assist

(Launched)

TeslaDriverless auto pilot

(Beta Launched)

MobileyeDriverless auto pilot

(2016)

Traditional market participants and new entrants are developing autonomous vehicles

or technology behind them


6

Alignment for Mass ChangeInfrastructure Availability

• Technology initially embedded in vehicles

• Vehicles can use existing roads

Existing Infrastructure

• Roads, signs, signals communicate with cars

• Result in integrated driving environment

Smart Infrastructure

Source: (1) “Platooning With IVC-Enabled Autonomous Vehicles: Strategies to Mitigate Communication Delay, Improving Safety and Traffic Flow.” IEEE TRANSACTIONS ON INTELLIGENT TRANSPORTATION SYSTEMS VOL. 13, NO. 1, MARCH 2012. Pedro Fernandes, Member, IEEE, and Urbano Nunes, Senior Member, IEEE

Autonomous vehicles could increase highway

capacity by up to 500%(1)


7

Alignment for Mass ChangeRegulatory Permission

As of earlier this year, 21 states(1) have passed or introduced bills related to self-driving vehicles. California, Michigan and Nevada are likely to set standards adopted by others.

WA

OR

CA

NV

AZ

CO

LA

OK

TX

WIMN

SD MI

GA

SC

FL

NY

NJ

NHMA

DC (PASSED)MD

HI

2015 Current Status Passed Under Consideration Withdrawn / Failed

Note: (1) Most recent publicly available sources as of May 2015.Source: Stanford University’s Center for Internet and Society – Automated Driving: Legislative and Regulatory Action and individual state legislature websites

ID

ND

IL

MO

TNNC

CT


8

Alignment for Mass ChangeRegulatory Permission

National Highway Traffic Safety Administration released a report that states:

“…new possibilities for improving highway safety, increasing environmental benefits, expanding mobility, and creating new economic opportunities…on the threshold of a period of dramatic change in…the vehicles we drive”

Meanwhile in Ontario…

Government pledged roughly $3 million in funding to Ontario Centres of Excellence Connected Vehicle/Automated Vehicle Program


9

Alignment for Mass ChangeLegal Responsibility

Legal implications of autonomous vehicles

are developing and evolvingAdapting to

Change

Insurers have opportunity to define policy

Initial Lawsuits

Lawsuits and rulings will provide

tort clarity

The Key Players

Manufacturers and insurers need

legal strategy


10

Alignment for Mass ChangeConsumer Adoption

Each driver has unique value proposition, and autonomous vehicles offer broad appeal. Focusing on improving consumer’s quality of life will likely result in traction

Shorter commute

time

Ability to multi-task

Freedom to turn self-driving

mode off


11

Alignment for Mass ChangeMobility Services

0% 20% 40% 60%

U.S.A. Average

San Antonio

Los Angeles

Houston

Dallas

Chicago

Philadelphia

Boston

Washington D. C.

New York City

Households with 2+ Vehicles

Car Sharing• Standard

option for urban drivers

Ride Hailing• Further

convenience and savings

Autonomous Vehicles

• Declined vehicle ownership


12

Alignment for Mass ChangeData Management

Data Management• A tsunami of

data will roll in

DataSecurity• Autonomous

driving will face serious security threats

Information Privacy• Individual

privacy may become harder to achieve

Data Analytics• The ability to

gather, aggregate and harness the data will be critical


13

Agenda





Call to action


Timing


What Now?


14

TimingFour Phases of Transformation

• Introduction to autonomous vehicles• High-tech companies express interest

• Partial driver substitution technology• More consumers experience technology• Potential mandate for V2V communications

• Fully autonomous all-speed vehicles • V2V capabilities likely embedded in new vehicles• Increase in scale drives down costs

• Broad-based transformation begins• New vehicles have autonomous capabilities• A “new normal” realized by 2040

Now - 2017

Acceleration

Full Speed

Training Wheels

First Gear

2017 - 2020

2020 - 2025

2025 - 2040

No crystal ball to predict future

We envision four potential incremental changes to transformation over next 25 years, with foundation laid for a “new normal” within a decade


15

TimingInsurance Industry View on Timeline

Source: KPMG LLP (U.S.)’s 2015 Automobile Insurance in the Era of Autonomous Vehicles Survey Results.

10%23%

68%

74%84%Significant impact on business after 2025

Not ready for autonomous vehicles

Little or no understanding of autonomous vehicles

No budget allocated for preparation for autonomous vehicles

Developed a strategic plan


16

Agenda





Call to action


Timing

Implications for Insurers

Future State

What Now?


17

Implications for InsurersPotential Impact to Different Coverages

Source: KPMG LLP (U.S.) actuarial analysis estimates based on data from the U.S., and US Centers for Disease Control and Prevention (2010)

Life and annuitiesMortality tables will be impacted – road traffic

accidents leading cause of death for ages 15 to 34

Health insuranceNeed to modify processes for auto accident related

health claims

Workers’ compensation6% of claims costs arise

from auto accidents

Auto insuranceClaim frequency will fall,

ultimately leading to lower premiums


18

Implications for InsurersActuarial Analysis

Actuarial Analysis

Accident Frequency

Severity Trends

Insurance Market Size

Insurance Product Mix

Size of Car Stock

Autonomous Vehicle

Technology

Autonomous Vehicle

Adoption Rates


19

Implications for InsurersAccident Frequency and Severity

Source: KPMG LLP (U.S.) actuarial analysis estimates based on data from the U.S.

-

0.005

0.010

0.015

0.020

0.025

0.030

0.035

0.040

0.045

Inci

dent

s pe

r ve

hicl

e

Accident Frequency per Vehicle

Average incidents per vehicle

10,000

15,000

20,000

25,000

30,000

35,000

Cos

t pe

r ac

cide

nt ($

)

Severity per Accident

Average severity


20

Implications for InsurersExpected Loss

Combining frequency and

severity assumptions

indicates a drop of roughly 50% in

expected insured loss per vehicle

Note: (1) Based on total auto insurance market. Source: KPMG LLP (U.S.) actuarial analysis estimates based on data from the U.S.

55%

60%

65%

70%

75%

80%

85%

90%

95%

100%

250

300

350

400

450

500

550

600 Percent of 2013 industry aggregate loss

Cos

t pe

r ve

hicl

e ($

)

Expected Loss(1)

Average loss cost per vehicle Percent of 2013 industry aggregate loss


21

Safer vehicles could result in auto insurance

industry losses decreasing by 40% by 2040, with commercial

and product liability accounting for larger

portion of loss pie

Implications for InsurersIndustry Loss Costs

Source: KPMG LLP (U.S.) actuarial analysis estimates based on data from the U.S.

0

20

40

60

80

100

120

140

160

Exp

ecte

d to

tal l

oss

($bi

llion

s)

Expected Loss Allocated to Personal Auto, Commercial Auto and Products Liability

Personal auto Commercial auto Products liability

60% decrease in

personal auto losses


22

Agenda





Call to action


Timing

Implications for Insurers

Future State

What Now?


23

Future StateA New Insurance Landscape

Multiple responses allowed

Will result in emergence of niche writers

Will result in new providers of insurance

Will have no material impact on insurance industry

Will increase industry consolidation

Will shift mix of personal and commercial auto

business

Other

42%

39%

32%

29%

26%

10%Source: KPMG LLP (U.S.)’s 2015 Automobile Insurance in the Era of Autonomous Vehicles Survey Results

Over the next 10 years, many survey respondents expect emergence of niche writers and new providers of insurance

Roughly one-third of executives believe this new technology will have no material impact on the industry


24

Agenda





Call to action


Timing


WhatNow?


25

What Now?Call to Action

Understand your company’s exposure to the

change

Evaluate your business strategy

Identify and monitorleading indicators

Align with other insurers and form partnerships

Educate and train yourpeople

Understand coststructures

Prepare your operations

CALLTOACTION


26

Related Reports from KPMG

Source: KPMG LLP (U.S.)

Self-driving cars: The next

revolution

Me, my car, my life

Self-driving cars: Are we ready?

Joe Schneider Houston ChengManaging Director Consulting Actuary(312) 665-1006 (416) [email protected] [email protected]

Survey: https://www.kpmg.com/US/en/IssuesAndInsights/ArticlesPublications/Documents/automobile-insurance-in-the-era-of-autonomous-vehicles-survey-results-june-2015.pdfWhite Paper: https://www.kpmg.com/US/en/IssuesAndInsights/ArticlesPublications/Documents/marketplace-change.pdf

mailto:[email protected]

mailto:[email protected]

https://www.kpmg.com/US/en/IssuesAndInsights/ArticlesPublications/Documents/automobile-insurance-in-the-era-of-autonomous-vehicles-survey-results-june-2015.pdf

https://www.kpmg.com/US/en/IssuesAndInsights/ArticlesPublications/Documents/marketplace-change.pdf

© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.