The conversion to autonomous vehicles could bring about the most significant change to the automobile insurance industry since its inception. Convergence of consumer and automotive technologies along with the rise of mobility services could transform the way we drive and commute – and in turn could change the amount, type, and purchase of automobile insurance. The disruption to insurers could be profound, with a select set of winners and a broader swath of potential losers. Now is the timetorethink the future and start taking action.The advent of the autonomous vehicle era is upon us. Change is coming—faster than most expect. Yet, we know
there is strong skepticism across the automobile insurance marketplace about this potential transformation. Our recent survey of insurance executives confirmed that few carriers have taken action—not due to doubts about the possible ramifications but rather because most believe the change
will happen far into the future if at all.1We respect this conservatism. In fact, we carried a similar viewpoint as we started our task force on this topic. The more we learned, however, the more we became convinced that the transformation is real and it is happening now. And we are not alone—several automotive industry leaders and analysts now predict fully autonomous vehicles within five years. KPMG has been at the forefront of the autonomous vehicle conversation. Our Automotive Team did a deep dive into the underlying technologies in 2012, and issued a seminal white paper, Self Driving Cars: The Next Revolution. Subsequently, that Team issued follow-on papers focused on the ultra-connected age and on consumer adoption—yes, the marketplace will buy safe and affordable self-driving vehicles.Our research was convincingly clear that the automobile landscape was poised for disruptive change.Now the dialogue must expand to include insurance. Leveraging KPMG’s automotive research, our task force developed actuarial models that considered the implications on a carrier’s core metrics: accident frequency, claim severity, and loss costs. The results were stark. We also conducted a survey of insurance executives to gauge industry readiness.This white paper synthesizes our work to date, and provides an integrated view along three key themes:
1. Alignment for mass change within a decade
Together, the core ingredients—including technology, consumer adoption, and regulatory permission—are presently
aligning to enable mass change. We envision four incremental phases of the transformation, moving from the current “training wheels” phase of curiosity and introduction into “full speed” as the vehicle stock starts to widely convert in 2025.
2. Radical shifts for the auto insurance marketplac A continual decline in the frequency of accidents should drive a drop in industry loss costs, with a precipitous fall starting in a decade as the vehicle stock converts. The mix of insurance will also change, as commercial and products liability lines expand. Within 25 years, our models suggest a scenario where the personal auto insurance sector could shrink to 40 percent of current size.The elimination of excess capacity could bring severe market issues, with changing business models and new competitors only adding to the turbulence and speed of change.
3. The need to start preparing now
No one has a crystal ball to predict with certainty the future. The shift, however, is clear to us. We encourage insurance companies to consider the implications on their organizations and take precautionary action now, with deeper changes taken later based on movement in lead indicators. The tactical responses will take considerable time and resources—strategic moves will require significantly more. Now is the time for a rethink.
A potential view from the insurance marketplace – 2030
A case study
Mary Elleston, president of GoGo Auto Insurance, sighs as she finishes reading the latest market analysis from her research team compiled for this week’s board meeting. The turmoil in the auto insurance marketplace only continues to deepen. Another two regional auto insurance carriers—peers of GoGo—have closed this quarter, with most of their books of business absorbed again by the big five insurance companies that have come to dominate the industry with niche players picking up a portion. The number of auto insurance companies has decreased by nearly half since 2015, and the consolidation trend is only accelerating. Not a surprise as she thinks about all that’s happened over the past 15 years. The adoption of autonomous vehicles has driven the change. And the implications, in Mary’s view, have been decidedly mixed.The use of these vehicles has no doubt improved quality of life—reducing commute times and allowing for multitasking while en route. Through sensors and vehicle-to-vehicle (V2V) communications, the frequency of accidents has fallen significantly, which in turn has sliced away billions in claim damage, reduced the number of personal injuries, and saved hundreds, perhaps thousands, of lives, too.
Auto manufacturers—both traditional players and a wave of new technology entrants—have released a series of new models, each with increasingly more sophisticated levels of self-driving capabilities. The year 2025 was a milestone—the National Highway Traffic Safety Administration (NHTSA) mandated that all new vehicles sold have self-driving capabilities, which built upon a vehicle-to-vehicle communication mandate implemented a few years earlier. The trend was in retrospect clear, when you considered all of the societal benefits. By 2025, the consumer had fully embraced self-driving vehicles, too. People quickly moved from seeing the vehicles as a novelty to becoming accustomed to the benefits—checking the Internet, video chatting with friends, watching TV, and doing office work on their commutes. In fact, the auto dashboard has become an integral part of their lives. The adoption cut across all demographics, not just tech savvy Millennials. A surge by Baby
Boomers—eager to maintain their personal independence—has proven to be an unexpected, but major catalyst.On the other hand, the fallout for the insurance industry has been devastating. Frequency of accidents has fallen over 50 percent during the past 15 years, and will continue to drop. As premiums follow loss costs, the size of the auto insurance marketplace has also dropped significantly, with some offset due to severity increases related to more expensive vehicles. In addition, the overall vehicle stock has plateaued and actually begun to fall due to more efficient sharing of vehicles. While these factors were shrinking the size of the auto premium pie, the allocation of the slices of risk among carriers was dramatically changing as well.A large movement to self-driving vehicles on demand
basically fleets of transportation pods summoned by text, call, or calendar entry—has pumped up the commercial auto share of the market. With all of the new technology being used, products liability took share to cover the new risks. The remaining portion of the market available to personal auto
writers has shrunk to about two-thirds of the 2015 size. And the competition for this smaller slice has become even fiercer.Auto manufacturers began to sell insurance as part of the sticker price of the vehicle. Technology companies—which owned the data coming from the dashboard—started
their own insurance groups, leveraging the competitive (and proprietary) insights gained about driving performance.The brunt of the transformation has fallen on legacyautomobile insurance carriers. Mary remembers many a tense conversation with her executive team—and then increasingly
with the board—about what to do. At first, GoGo—like most other insurance carriers—got distracted playing catch-up with the side effects of the new technologies through a continual series of tactical actions around policy forms, pricing schedules and underwriting guidelines. The financial implications caught her by surprise.
Customers began to demand more premium discounts to reflect safer driving, and then the number of policies in force fell for the first time. The shift to mobility on demand—especially in urban locations—accelerated the decline. As GoGo’s gross premiums slipped, the expense ratio got distorted. She quickly implemented teams to evaluate expense structure, and determine where to cut costs and by how much. It was ugly. GoGo wasn’t alone. Other carriers—particularly monoline companies focused solely on auto—faced similar challenges. Rates began to fall as stressed companies attempted to grab cash flow to cover costs, which caused a further downward spiral. This period of irrational pricing, which has only now started to abate, drove several carriers into bankruptcy and hurt the capital positions for those that survived. The financial markets also turned away, limiting the ability to raise additional funds. GoGo survived, but has been deeply shaken.The board is nervous. Mary is still finalizing the go-forward strategy to reposition GoGo in this evolving marketplace. The challenges have been great, but several opportunities remain, she is sure. Down the hall, her executive team has assembled in the conference room for another planning meeting. As she gathers the market report and her notes, she again considers the options
The advent of the autonomous vehicle era is upon us. Shifts of this scale won’t happen through singular change, but will instead require foundational
movements across the entire driving environment. We have identified eight core elements that will likely be needed to drive the transformation.
Each element has been individually advancing—you are seeing evidence daily of the progress—and brings its own industry implications. The current alignment of these eight elements, however, can enable a new normal across the automobile sector.
Integrity of technology –
Foundational technologies required for driver autonomy already exist, and should only continue to strengthen and integrate. Convergence of technologies will ultimately be needed for mass adoption.
Infrastructure availability –
With the initial technology embedded into the vehicles themselves, the new vehicles can use existing roads—no up-front
investment in infrastructure is needed to get started. Over time, road infrastructure is expected to become increasingly “smart” and will communicate with vehicles to realize a more holistic array of information.
Capability accessibility –
Traditional manufacturers (OEMs) have committed pipelines of new vehicles, with each release making accessible more sophisticated autonomous capabilities. Watch for high-tech companies—like Google, Tesla, and Apple—to leapfrog to fully self-driving.
Regulatory permission –
As of earlier this year, sixteen states (District of Columbia included in this number) have passed or introduced bills related to self-driving vehicles, with California, Michigan, and Nevada likely to set the standards to be adopted by the others.In 2013, the NHTSA (the Administration) released a preliminary findings report that—from our perspective—stopped just short of a full endorsement.The Administration is also gathering formal feedback on a potential mandate to require V2V
communications in new vehicles.
Legal responsibility –
As the vehicle itself makes more driving decisions, determining who is responsible when an accident occurs will need to be clarified. These legal issues should resolve in parallel with advances in autonomous technology—likely without hindering market advances. Insurance companies have an opportunity to develop policy covers to provide protection to both individuals and corporations—manufacturers of the vehicles and technology—in this new environment.
Consumer adoption –
Our research showed that once consumers understood the potential benefits, they were significantly more willing to use autonomous vehicles.Each driver has a unique value proposition, and autonomous vehicles offer broad appeal: the ability to multitask, faster commutes, safer travel, and more independence to name a few. Consumer education and awareness will be important—and a key area of manufacturer focus—to promote adoption. As consumers begin to adopt the
autonomous technology, a tipping point—like that exhibited for cellular technology—may be reached that will further accelerate the movement. Potential government mandates could push the rate of adoption, too.
Mobility services –
Ride-hailing is now a standard option for urban drivers. This new model of vehicle usage has thrived due to convenience and cost advantages for the user. Those two core benefits have been further magnified through the emergence of mobility on demand—with Uber as a good example. Downward pressure on the overall size of vehicle stock—due to efficiency of usage—is another potential ramification.
Data management –
Autonomous driving requires and generates a substantial amount of data, which will likely grow exponentially as the web of information becomes denser between vehicles, infrastructure, and other sources.Driving records along with dashboard activity (captured in a “black box” equivalent) only add to the volume and mix.
In this environment, data management—integrity, storage, analytics, and security—becomes critical.
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