Dear Friends,

We often share the technological advances that will lead us to the era of driverless cars that would be seen in large numbers on highways. However, to predict from nowon the possible side effects of this development seems necessary. I’ll talk about it today.

A Reuters-sourced article by Tina BELLON on July 26, 2019 states that insurance companies generating annual premium of $ 244 billion over motor vehicles in USA may incur a loss of $ 20 billion in premiums as of 2020 for motor vehicles equipped with ADAS sensors.

Vehicles having this advanced technological system, called ADAS ( Advanced Driver Assistant Systems), are capable of automatic cruise control, lane keeping and collision avoiding automatic brake. The ADAS market today has grown to a size of $ 38.5 billion. It is expected to reach a size of $ 67 billion by 2025, with a growth of 10% each year. Backed by legislation, it also makes a new profit on vehicles with high profit margins. The cost is between $ 500 and $ 1000 with all three functions per vehicle.

Individual insurance transactions for vehicles are generating big turnover volume despite low profit margin. In 2018 , for example, a $ 244 billion premiums were generated in USA. On the other hand, traffic accidents in cars equipped with ADAS are projected to decrease by 25% as of 2020, hence a $ 20 billion reduction in insurance premiums was predicted by Switzerland’s insurance agencies . However, the view that the data obtained in USA does not confirm these predictions. Because the bumper and windscreen damage to which the ADAS sensors are placed could double the repair cost, thereby it could offset cheaper insurance premiums .

By the way, I’ll give our country’s traffic insurance and ”Kasko” premium accruals for 2018. Statistics from the Turkish Insurance Association ( TSB) show that TL 12.59 billion was collected for compulsory traffic insurance and TL 7.84 billion was collected for Kasko. The total premium generated is over TL 20 billion, or $ 3.5 billion.

Despite all, researches have revealed that the rate of injury will be reduced by 56% in front-to-rear crashes of cars with ADAS. But most ADAS features are still sold as optional equipment, making insurers reluctant to re-assess insurance premiums.

To address these challenges, car brands and insurance companies have begun to work together. GM is setting an example.

As a result, the reduction in traffic accidents and damage will offset the increase in the cost of repairs, though the cheapening of insurance premiums could bring cash shortages in insurance industry. Swiss insurance companies have begun working with BMW for the way out. We are also learning from sources that talks are going on with other car brands.

With the increase of driverless vehicles on the roads in the near future, traffic accidents will be significantly reduced, for sure. Then, a drastic decline in premium generation of insurance companies seems inevitable. So, how will the insurance industry manage this loss ? We shall wait and see.

See you in my next article,

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