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Theevolutioninself-drivingvehiclesTrendsandimplicationsfortheinsuranceindustry030710ExecutivesummaryInsuranceimplicationsConclusion•Anevolvingcompetitiveenvironment•Along-termgamewithshort-termimplications•Incrementalautomationischangingtherulesofthegame•Long-termimplicationsfortheautomotiveandinsuranceindustries•Challenge1:Whatriskswillremain–andwillnewonesarise?•Challenge2:Whoisthecustomer,andhowwillwedobusinesswiththem?•Challenge3:Howwilltheinsuranceproducthavetochange?•Challenge4:Howwillwepriceit–andcanitstillbeprofitable?•Challenge5:Whatinfluencewilllegislatorshave?1|Theevolutioninself-drivingvehicles2Theevolutioninself-drivingvehicles|ExecutivesummaryAnumberofsocial,economicandtechnologicaltrendsareworkingtogethertodisruptmobility.Theautomotiveindustry,inparticular,isexperiencingamassiveamountofchange.Inthenot-too-distantfuture,fullyautonomousvehicleswillbethenormratherthantheexception,redefiningurbanmobilityasweknowit—andtheywillbeshared,connectedandgreen.ThegeneralexpectationforthefutureiscapturedbyacommentbyMaryBarra,ChiefExecutiveOfficerofGeneralMotors.Lastyear,shesaid:“We’regoingtoseemorechangeinthenext5to10yearsthanwe’veseeninthelast50.”Thesechangeswillnotonlyaffecttheglobalautomotivemarket.PerhapsthemostcomplexchallengeswillbefacedbytheglobalautoinsurancemarketwhichisvaluedatanestimatedUS$700b.3|Theevolutioninself-drivingvehiclesAnevolvingcompetitiveenvironmentAllmajorcarmanufacturersareactiveinthisspace,withnewpartnershipscontinuouslybeingannounced.Mostautomakersareracingtodifferentiatetheirpremiummodelswithintelligentdriver-assistfunctions,suchassmartcruisecontrol,accidentavoidance,andcrashmonitoringandreporting.Theseeffortswillhastenconsumertrustindriverlesstechnologyandacceleratetheproliferationofthetechnologyforallcarmodels.Somemanufacturersaregoingevenfurther;forexample,Volvo,anautomakerknownforsafetyalthoughrelativelysmallintermsofglobalsales,predictsthatitwillbeabletoeliminatecrashesaltogetherforanyonedrivingoneofitscarsby2020.Inadditiontotraditionalplayers,newcompetitorsaregainingtractioninthisspace.Uber,despiterecentchallenges,hasbeentestingautonomousvehiclesinCalifornia.Waymo–Alphabet’sself-drivingcompany–hascompletedmillionsofmilesoftesting.Teslahasbeenincreasinglyaddingautonomousfeaturestoitscarswitheachsoftwareupdate.Someoftheseplayershavedeeppocketsthattheymightusetooffercheaperinsuranceorincreasedwarranties,tohastenadoptionandtograbmarketshare.4Theevolutioninself-drivingvehicles|Along-termgamewithshort-termimplicationsDespitethishighlevelofinterestandinvestment,widespreadadoptionofcompletelyautonomousvehiclesisnotexpectedtotakeplacebefore2030.Partofthechallengeisrelatedtoregulation,withregulatorslikelydemandingalargeamountofstatisticaldatatodemonstrateincreasedsafety.Additionalchallengesincludetheneedformoderninfrastructurethatsensorscanreliablyread,securityconcerns,includingcybersecurity,and,ofcourse,thecostimplications.Furthermore,theexpectationisthatthesevehicleswillinitiallybeintroducedinclosedecosystems,suchascitycentersordedicatedhighwaylanes,andintegrationwith“traditional”vehicleswilloccuronlywhensafetyhasbeenthoroughlydemonstrated.Whiletheroadtocompletelyautonomousvehiclesisstilllong,thereareseveralmarketswhereuptakeisexpectedtobefaster.Overtheshortterm,theexpectationisthatcommercialvehicleswillleadtheway,specificallytrucksonhighwaysandotheroff-roadvehiclesforminingandconstruction.Ride-hailingcompaniesareanothernicheforexperimentation,asthiswillsignificantlyreducetheircostbase.5|Theevolutioninself-drivingvehiclesIncrementalautomationischangingtherulesofthegameCertainassisteddrivingsystemspertainingtolowlevelsofautomation—level1andlevel2intheillustrationonpage6—arealreadyinplace;forexample,lanekeeping,self-parkingfunctionalitiesandautonomousemergencybraking(AEB).Inparticular,AEB–whichstopsthecarbeforeithitsanobstacleifthedriverdoesnotrespondintime–hasbeenproventoreducelow-speedaccidentsby20%.Othersystemshavealsoreducedaccidents;forexample–accordingtotheU.S.DepartmentofTransportation–Tesla’sModelSand2016ModelXcrashpermillionmileshasdecreasedby38%aftertheinstallationofautosteerfunctionality.Evenarelativelymodestadoptionofincrementaladvanceddriverassistancetechnology,suchassmartcruisecontrolandcrashavoidance,wouldsignificantlyrelievecongestionandreducethenumberofcongestion-relatedaccidents.Notonlyarethedifferentlevelsandsystemsimportantbecausetheymakedrivingacarsafer,butalsotheychangetheriskprofileofthecar.Theexpectationisthatfeweraccidentsleadtolowerpremiumsand,ifthisisnotthecase,manufacturersmaytakethingsintotheirownhands.TeslaCEOElonMuskmadethispointinarecentearningscall,saying:“Ifwefindthatinsuranceprovidersarenotmatchingtheinsuranceproportionatetotheriskofthecar,then,ifweneedto,wewillin-sourceit.”Long-termimplicationsfortheautomotiveandinsuranceindustriesOverall,theexpectationisthattheeffectofthisrevolutionwillresultinreducedgrowthinthenumberofvehiclesontheroad,particularlyindevelopedmarketsandsomedevelopingones,suchasChina.Inaddition,theemergenceofcar-sharingfleetswill