The rise of self-driving cars could turn out to be a big win for auto insurers, according to analysts at Bank of America Corp. While the shift to autonomous vehicles creates uncertainty in the industry, it may also open the door to higher profits.
Right now, under U.S. law, drivers are responsible if they cause an accident. But with autonomous vehicles, the driver isn’t behind the wheel. That means liability would likely shift from individual drivers to carmakers and software companies a change that could ease one of the biggest challenges for insurers.
“Auto insurers typically lose money on liability coverage,” Bank of America analysts led by Joshua Shanker noted in a client report Thursday. “Shifting responsibility to commercial insurers tied to the carmakers could be financially beneficial for personal lines companies.”
In other words, instead of footing the bill for accident losses themselves, insurers could handle claims and then recover costs from the new parties responsible.
Some skeptics argue that autonomous cars will reduce accidents caused by human error, which could cut insurance costs and shrink profits. But Bank of America says the data tells a different story. While the frequency of accidents has fallen over time thanks to safety innovations, the severity of crashes has increased sometimes offsetting the benefits from fewer incidents.
“Auto accident frequency has improved consistently for more than a hundred years,” the analysts wrote, “but over the past two to three decades, despite numerous safety innovations, the pace of improvement has notably slowed.”
The debate over how self-driving vehicles will affect insurance has intensified, especially after several high-profile deaths linked to the technology. Meanwhile, autonomous taxis from Tesla and Alphabet’s Waymo are appearing on more streets.
In June, Goldman Sachs suggested that as self-driving cars reduce human-error accidents and lower costs, the $400 billion U.S. auto insurance industry may need a major shake-up.
