NEW YORK (BestWeek) — Three out of four insurers aren’t prepared for driverless vehicles, and one-third haven’t done anything about an industry change that could be near, according to a KPMG summary of a survey looking at automobile insurance in a time of autonomous vehicles.

A full report is due out later this year. While insurer executives may believe the switch to driverless vehicles is a long way off, KPMG said its research shows core ingredients “aligning to enable mass change starting in a decade”.

The frequency of accidents is expected to decline substantially with the adoption of driverless cars, and potential is there for a smaller pool of personal and commercial vehicles, the report says, but some loss would be offset by insurers because commercial and product liability lines could expand.

“We are convinced that a period of unprecedented change has begun,” said KPMG, and insurance executives need to “contemplate and then ultimately address” key factors.

Rich Attanasio, AM Best vice-president, said the industry is “already seeing some of the benefits” of increased technology in vehicles. On the way to fully driverless cars, he pointed out, motorists are already using anti-lock braking, rear-view cameras, parking assist and lane departure innovations to reduce the likelihood of a crash.

And with auto insurance accounting for about 35 per cent of net written premiums in the industry, and homeowners “only half of that,” he said, “growth pressures are very real”.

With that in mind, he said, “Long-term thinking is the more important thing ... Thinking strategically, which is always an important issue, but this heightens it a little more. It’s a matter of positioning.”

Safety improvements, technology and “enhanced traffic enforcement” have made driving safer over the past ten to 15 years in a way that has “been only modestly offset” by higher medical and repair costs and distracted driving issues, Attanasio said.

He foresees a gradual shift to driverless cars as drivers replace ageing stock. That will “afford companies the opportunity to adapt to what’s happening in the future,” he said, including addressing “potentially whole other markets that could be created with this.” Liability on the part of manufacturers is one oft-cited example. Another is cyber-risk.

The driverless-car factor KPMG thinks will most affect auto insurers is increased safety. KPMG estimates the frequency of accidents could fall by up to 80 per cent within the next 25 years, to a rate of 0.009 incidents per vehicle. The report quotes an Insurance Institute for Highway Safety official who said automation is already reducing claims, particularly in vehicles with front-crash-prevention technology. However, it calculates the dollar value of claims could rise by 150 per cent by 2040, because of “costly technology” in autonomous vehicles.

Putting the two factors together, KPMG says there is a potential “40 per cent-plus drop in total loss” in 25 years, to be felt most keenly in the private auto insurance sector. “As the size of the market shrinks, we anticipate the potential for frenzied competition as firms attempt to maintain premium volume to cover operational expenses or market share,” the report says. “Things could get ugly.”

KPMG asked survey participants — of which 84 per cent were at the executive vice-president, managing director or higher level — questions about how, or if, their companies are planning for driverless cars, who they think will drive change, how regulators might affect adoption, what impact driverless cars might have on the insurance industry, and more. The report lists questions leaders in various departments could raise internally to “get the conversation started,” as well as a call to action.

Survey respondents admitted 32 per cent have “done nothing” to prepare for driverless vehicles, and only 6 per cent have operational plans, although some have established a task force or are drafting plans.

Munich Re America president Carsten Prussog has said that within ten years most cars will have driverless capabilities, calling it a “huge opportunity” because of the potential reduction in auto fatalities. He said the insurance industry needs to “get our arms around” new developments.

The KPMG report breaks down “eight key elements” that would “drive the transformation” to autonomous vehicles: integrity of technology, infrastructure availability, capability accessibility, regulatory permission, legal responsibility, mobility services, data management and consumer adoption. It says, “Our research showed that once consumers understood the potential benefits of autonomous vehicles, they were hooked,” by factors such as the ability to multi-task, “faster commutes, safer travel, and more independence”.