The adoption of driverless cars will leave a massive dent in the car insurance market, according to the Bank of England, forcing insurers to team up with car firms as they transform their business.
Economists at the Bank say their central forecast is for the UK motor insurance market to contract by 21 per cent by 2040, with a hit of 41 per cent in the more optimistic case for adoption of the new technology.
Car manufacturers and technology companies are racing to bring fully autonomous vehicles to the road and to comply with nascent regulatory regimes.
The advent of the driverless car will have “profound effects”, said the article’s authors, Stefan Claus, Nicholas Silk and Chris Wiltshire.
The Bank’s survey of industry experts showed 80 per cent of car sales will be autonomous by 2040, although the the estimates of the adoption rate vary by two decades.
Insurers will need to “transform” their business model, with the Bank expecting a big decrease in insurance premiums as the number of claims falls. Autonomous vehicles have already been shown to be safer on average than human-driven cars.
The industry experts surveyed by the Bank expect the most common claims to fall by two-thirds.
The Bank’s interest in driverless cars stems from the Prudential Regulation Authority’s remit to police systemic risks in the insurance market.
A big failure from a major car insurer would cause “significant disruption to mobility and transportation” across the UK, the Bank says, as driving without insurance is illegal.
The Department for Transport has confirmed mandatory insurance will be extended to driverless vehicles, but the model could change to one in which the manufacturer will be liable for accidents caused by product error, such as a software bug.