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24th Annual Insurance Issues Conference
Auto Insurance in the Era
of Autonomous Vehicles
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
1
Automobile Insurance in the Era ofAutonomous Vehicles
KPMG U.S. recently published two documents on Automobile
insurance in the era of autonomous vehicles
Video: Driverless vehicles
This presentation is based on the publications from KPMG LLP (U.S.).
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
2
Agenda
8 elements for transformation
4 phases to a new normal
Potential impact on insurance
A new insurance landscape
Call to action
Alignment for Mass Change
Timing
Implications for InsurersFuture State
What Now?
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
3
Alignment for Mass ChangeEight Key Elements for Transformation
Interactions between elements are dynamic
Advances in one area may act as catalyst for
progress in others
Integrity of Technology
Infrastructure Availability
Legal Responsibility
Mob
ility
Se
rvic
es
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
4
Alignment for Mass ChangeIntegrity of Technology
Foundational technologies already
exist and will continue to strengthen and integrate
Pervasive Sensors
GPS
CamerasSensors
$ $
$
$$
$
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
5
Alignment for Mass ChangeCapability Accessibility
Source: NHTSA, KPMG LLP (U.S.)’s Self-Driving Cars: Are We Ready?, Automotive News, New York Daily News, Reuters, Bloomberg and Company websites.
Google100% autonomous prototype driven car
(Launched)
BMWAdaptive
cruise control
(Launched)
VolvoTraffic jam assistant
(Launched)
AudiAdaptive
cruise control
(Launched)
CadillacSuper Cruise
(2017)
FordAdaptive
cruise control
(Launched)
Mercedes - Benz
Traffic jam assist
(Launched)
TeslaDriverless auto pilot
(Beta Launched)
MobileyeDriverless auto pilot
(2016)
Traditional market participants and new entrants are developing autonomous vehicles
or technology behind them
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
6
Alignment for Mass ChangeInfrastructure Availability
• Technology initially embedded in vehicles
• Vehicles can use existing roads
Existing Infrastructure
• Roads, signs, signals communicate with cars
• Result in integrated driving environment
Smart Infrastructure
Source: (1) “Platooning With IVC-Enabled Autonomous Vehicles: Strategies to Mitigate Communication Delay, Improving Safety and Traffic Flow.” IEEE TRANSACTIONS ON INTELLIGENT TRANSPORTATION SYSTEMS VOL. 13, NO. 1, MARCH 2012. Pedro Fernandes, Member, IEEE, and Urbano Nunes, Senior Member, IEEE
Autonomous vehicles could increase highway
capacity by up to 500%(1)
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
7
Alignment for Mass ChangeRegulatory Permission
As of earlier this year, 21 states(1) have passed or introduced bills related to self-driving vehicles. California, Michigan and Nevada are likely to set standards adopted by others.
WA
OR
CA
NV
AZ
CO
LA
OK
TX
WIMN
SD MI
GA
SC
FL
NY
NJ
NHMA
DC (PASSED)MD
HI
2015 Current Status Passed Under Consideration Withdrawn / Failed
Note: (1) Most recent publicly available sources as of May 2015.Source: Stanford University’s Center for Internet and Society – Automated Driving: Legislative and Regulatory Action and individual state legislature websites
ID
ND
IL
MO
TNNC
CT
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
8
Alignment for Mass ChangeRegulatory Permission
National Highway Traffic Safety Administration released a report that states:
“…new possibilities for improving highway safety, increasing environmental benefits, expanding mobility, and creating new economic opportunities…on the threshold of a period of dramatic change in…the vehicles we drive”
Meanwhile in Ontario…
Government pledged roughly $3 million in funding to Ontario Centres of Excellence Connected Vehicle/Automated Vehicle Program
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
9
Alignment for Mass ChangeLegal Responsibility
Legal implications of autonomous vehicles
are developing and evolvingAdapting to
Change
Insurers have opportunity to define policy
Initial Lawsuits
Lawsuits and rulings will provide
tort clarity
The Key Players
Manufacturers and insurers need
legal strategy
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
10
Alignment for Mass ChangeConsumer Adoption
Each driver has unique value proposition, and autonomous vehicles offer broad appeal. Focusing on improving consumer’s quality of life will likely result in traction
Shorter commute
time
Ability to multi-task
Freedom to turn self-driving
mode off
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
11
Alignment for Mass ChangeMobility Services
0% 20% 40% 60%
U.S.A. Average
San Antonio
Los Angeles
Houston
Dallas
Chicago
Philadelphia
Boston
Washington D. C.
New York City
Households with 2+ Vehicles
Car Sharing• Standard
option for urban drivers
Ride Hailing• Further
convenience and savings
Autonomous Vehicles
• Declined vehicle ownership
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
12
Alignment for Mass ChangeData Management
Data Management• A tsunami of
data will roll in
DataSecurity• Autonomous
driving will face serious security threats
Information Privacy• Individual
privacy may become harder to achieve
Data Analytics• The ability to
gather, aggregate and harness the data will be critical
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
13
Agenda
8 elements for transformation
4 phases to a new normal
Potential impact on insurance
A new insurance landscape
Call to action
Alignment for Mass Change
Timing
Implications for InsurersFuture State
What Now?
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
14
TimingFour Phases of Transformation
• Introduction to autonomous vehicles• High-tech companies express interest
• Partial driver substitution technology• More consumers experience technology• Potential mandate for V2V communications
• Fully autonomous all-speed vehicles • V2V capabilities likely embedded in new vehicles• Increase in scale drives down costs
• Broad-based transformation begins• New vehicles have autonomous capabilities• A “new normal” realized by 2040
Now - 2017
Acceleration
Full Speed
Training Wheels
First Gear
2017 - 2020
2020 - 2025
2025 - 2040
No crystal ball to predict future
We envision four potential incremental changes to transformation over next 25 years, with foundation laid for a “new normal” within a decade
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
15
TimingInsurance Industry View on Timeline
Source: KPMG LLP (U.S.)’s 2015 Automobile Insurance in the Era of Autonomous Vehicles Survey Results.
10%23%
68%
74%84%Significant impact on business after 2025
Not ready for autonomous vehicles
Little or no understanding of autonomous vehicles
No budget allocated for preparation for autonomous vehicles
Developed a strategic plan
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
16
Agenda
8 elements for transformation
4 phases to a new normal
Potential impact on insurance
A new insurance landscape
Call to action
Alignment for Mass Change
Timing
Implications for Insurers
Future State
What Now?
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
17
Implications for InsurersPotential Impact to Different Coverages
Source: KPMG LLP (U.S.) actuarial analysis estimates based on data from the U.S., and US Centers for Disease Control and Prevention (2010)
Life and annuitiesMortality tables will be impacted – road traffic
accidents leading cause of death for ages 15 to 34
Health insuranceNeed to modify processes for auto accident related
health claims
Workers’ compensation6% of claims costs arise
from auto accidents
Auto insuranceClaim frequency will fall,
ultimately leading to lower premiums
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
18
Implications for InsurersActuarial Analysis
Actuarial Analysis
Accident Frequency
Severity Trends
Insurance Market Size
Insurance Product Mix
Size of Car Stock
Autonomous Vehicle
Technology
Autonomous Vehicle
Adoption Rates
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Implications for InsurersAccident Frequency and Severity
Source: KPMG LLP (U.S.) actuarial analysis estimates based on data from the U.S.
-
0.005
0.010
0.015
0.020
0.025
0.030
0.035
0.040
0.045
Inci
dent
s pe
r ve
hicl
e
Accident Frequency per Vehicle
Average incidents per vehicle
10,000
15,000
20,000
25,000
30,000
35,000
Cos
t pe
r ac
cide
nt ($
)
Severity per Accident
Average severity
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Implications for InsurersExpected Loss
Combining frequency and
severity assumptions
indicates a drop of roughly 50% in
expected insured loss per vehicle
Note: (1) Based on total auto insurance market. Source: KPMG LLP (U.S.) actuarial analysis estimates based on data from the U.S.
55%
60%
65%
70%
75%
80%
85%
90%
95%
100%
250
300
350
400
450
500
550
600 Percent of 2013 industry aggregate loss
Cos
t pe
r ve
hicl
e ($
)
Expected Loss(1)
Average loss cost per vehicle Percent of 2013 industry aggregate loss
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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Safer vehicles could result in auto insurance
industry losses decreasing by 40% by 2040, with commercial
and product liability accounting for larger
portion of loss pie
Implications for InsurersIndustry Loss Costs
Source: KPMG LLP (U.S.) actuarial analysis estimates based on data from the U.S.
0
20
40
60
80
100
120
140
160
Exp
ecte
d to
tal l
oss
($bi
llion
s)
Expected Loss Allocated to Personal Auto, Commercial Auto and Products Liability
Personal auto Commercial auto Products liability
60% decrease in
personal auto losses
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
22
Agenda
8 elements for transformation
4 phases to a new normal
Potential impact on insurance
A new insurance landscape
Call to action
Alignment for Mass Change
Timing
Implications for Insurers
Future State
What Now?
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
23
Future StateA New Insurance Landscape
Multiple responses allowed
Will result in emergence of niche writers
Will result in new providers of insurance
Will have no material impact on insurance industry
Will increase industry consolidation
Will shift mix of personal and commercial auto
business
Other
42%
39%
32%
29%
26%
10%Source: KPMG LLP (U.S.)’s 2015 Automobile Insurance in the Era of Autonomous Vehicles Survey Results
Over the next 10 years, many survey respondents expect emergence of niche writers and new providers of insurance
Roughly one-third of executives believe this new technology will have no material impact on the industry
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
24
Agenda
8 elements for transformation
4 phases to a new normal
Potential impact on insurance
A new insurance landscape
Call to action
Alignment for Mass Change
Timing
Implications for InsurersFuture State
WhatNow?
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
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What Now?Call to Action
Understand your company’s exposure to the
change
Evaluate your business strategy
Identify and monitorleading indicators
Align with other insurers and form partnerships
Educate and train yourpeople
Understand coststructures
Prepare your operations
CALLTOACTION
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.
26
Related Reports from KPMG
Source: KPMG LLP (U.S.)
Self-driving cars: The next
revolution
Me, my car, my life
Self-driving cars: Are we ready?
Joe Schneider Houston ChengManaging Director Consulting Actuary(312) 665-1006 (416) [email protected] [email protected]
Survey: https://www.kpmg.com/US/en/IssuesAndInsights/ArticlesPublications/Documents/automobile-insurance-in-the-era-of-autonomous-vehicles-survey-results-june-2015.pdfWhite Paper: https://www.kpmg.com/US/en/IssuesAndInsights/ArticlesPublications/Documents/marketplace-change.pdf
© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.