Out-Law News 1 min. read

Driverless cars pose threat to motor insurance market value, study finds


An improvement in car technology, together with other factors, is likely to push down the value of the global motor insurance market over the next quarter of a century, according to a new study.

Morgan Stanley and Boston Consulting Global (BCG) said that market could shrink by up to 80% in some countries around the world by 2040 if there is "heavy disruption" to current norms.

The reduction in market value could happen as a result of the "cumulative effect of a broad range of disruptive trends", from car technology, to the rise of ride-hailing, ride-sharing and car-sharing services, increasing availability of data generated by connected cars, digitisation, regulation associated with the forthcoming age of the driverless car, and global economic factors.

In one scenario envisaged in the study, the UK motor insurance market value could fall from its $24 billion current value to just $6bn by 2040. With "limited disruption" the UK market value would halve over the same period, according to the study report seen by Out-Law.com.

Morgan Stanley and BCG said: "We see solid social and economic arguments for governments seeking to speed adoption rates of safer technology through speed control measures, scrappage schemes and other legislation. Furthermore, new mobility companies are strongly incentivised to catalyse these changes by rolling out fleets of shared, autonomous vehicles."

Car manufacturers, telecoms providers and technology companies could win up to 20% of the share of the motor insurance market in some countries by 2020, the report said.

Motor insurers need to "adapt rapidly or become increasingly marginalised", it warned.

Morgan Stanley and BCG said "Whilst significant pain may not be felt in the immediate future, the next few years will be crucial for motor insurers to lay the foundations for success in the future state. Each motor insurer should be fundamentally reconsidering all aspects of its operating model (including product and business mix, underwriting capabilities, distribution channels, cost structure, and acquisition strategy)."

The report highlighted three potential routes insurers could take to safeguard their future in the market.

"A 'digital play' involves leveraging technology throughout the value chain to exchange data and engage with consumers, optimise the cost of risk and achieve superior cost efficiency," it said. "This model requires insurers to collect and use data in a more integrated way across functions – underwriting, servicing and claims – that are currently siloed in most insurers."

"Under a 'partnership play' insurers may turn to strategic partners (e.g. OEMs, data aggregators, digital service providers) to secure access to data and customers and/or complement their range of services. An 'adjacency play' is also possible where insurers look to mobility-related adjacencies in order to replace lost revenues and fuel future growth. Choice of strategy will depend on size, global reach and business mix," the report said.

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