This Could Cost Auto Insurers $117 Billion

auto-insuranceThere has never been a safer time to drive a car.
Auto fatalities have declined 25% in the last decade. And they’ve been cut in half since 1981. The latest data from the U.S. Department of Transportation shows just 10.3 auto fatalities per 100,000 people annually.
The decline in deadly accidents isn’t because people have become better drivers. Instead, the drop in fatalities is thanks to continued auto innovation and safety improvements.
Today, we’re entering a new era of smarter and safer cars. Of course, technology is once again the source of the improvements.
Last year, I bought a Chevy Suburban as a “family vehicle.” What’s impressed me most about the truck is the safety equipment. The rear camera helps assure that I avoid crushing the bikes in the driveway. Blind spot sensors let me know if there is a car that I can’t see. And the laser sensors warn me if I’m driving off the road or approaching another car too quickly.
These new technologies are common in many new cars, and are already reducing accidents and saving lives.
But the biggest improvement in auto safety is coming soon: self-driving cars.
Autonomous vehicles – also known as self-driving cars – will dramatically reduce the number of accidents. And that’s great news for everyone – except the auto insurance companies.
Click here to learn how self-driving cars will crush auto insurers.
With fewer auto accidents, insurance companies will be forced to reduce their premiums. After all, insurance company premiums reflect the aggregate cost of accidents from those that are insured. If auto accidents decline another 25% in the next decade, I’d expect insurance premiums to similarly decline.
In face, one research firm that advises insurance companies thinks the drop could be much bigger. Celent is advising its clients that premiums could drop 60% within the next 15 years due to the self-driving car.
Auto insurance is a huge business, with premiums of $195 billion. A 60% reduction would cost the industry a staggering $117 billion.
The country’s third largest insurer – Allstate (NYSE: ALL) – is already preparing for the decline. The company has created a team to study self-driving cars and their impact on its auto insurance business.
“There will be fewer cars. There will be fewer accidents. And it will be safer,” Allstate CEO Tom Wilson said in a recent Bloomberg Businessweek interview. “When you’re as big as we are and insure 16 million households, it doesn’t take much of a degradation to be a real revenue issue for you.”
Even Warren Buffett is concerned about these developments. His Berkshire Hathaway (NYSE: BRK-B) owns Geico, which is the nation’s second-largest auto insurance company. At the 2014 annual meeting, Buffett went on the record saying that “self-driving cars are a real threat to the auto insurance business.”
Auto premiums will not start plummeting next year. But within 10 years, self-driving cars will be commonplace. As they become more widely adopted and replace older cars on the roads, the number of accidents will continue falling. When that happens, auto insurance premiums will take a big hit.
Safer cars and lower insurance payments are great news for the average American. But for auto insurance companies, this is terrible news. The top three auto insurers – State Farm, Geico and Allstate – all will suffer huge declines in premiums and profits.
Are you ready to learn more about how self-driving cars will make our roads safer, reduce your insurance premiums and shorten your daily commute? Just click here now to get the details on our latest research.

To top