Impact of Car Sharing, Automated Driver Assistance, Autonomous Cars on Insurance

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1 Impact of Car Sharing, Automated Driver Assistance, Autonomous Cars on Insurance Dr. Anand S. Rao Innovation Lead PwC Analytics Mehrad Ahari Insurance Consulting PwC

2 Table of Contents 1. Disruptors to Auto Insurance 2. Impact on Auto Insurance 3. Case for Action Short-term. Medium-term and Long-term 4. Questions & Answers PwC page 2

3 Ridesharing, Automated Driver Assistance Systems, Autonomous Vehicles and Electric Vehicles are disrupting the auto industry ecosystem PwC 3

4 Car sharing & Ride sharing Younger, urban dwellers are increasingly shifting towards sharing as opposed to owning assets including cars 30% $5.2 Billion 1 Million 300 Annual growth of car and ride sharing globally Revenue from car sharing globally by 2020 Number of Uber drivers worldwide in June 2015 Number of cities with Uber as of June 2015 PwC page 4

5 Car & Ride Sharing Urbanization, rising cost of ownership, technology, and convenience of use, are fueling the rise of car and ride sharing Efficiency Ownership Provider Demographic Car Sharing Participation Car Sharing Preference Sharing makes life more affordable Less expensive to share than own Providers aged 18 to 44 years Participated in Car Sharing Like auto sharing because of better pricing 86% 83% 44% of US adults are familiar with the sharing economy and 19% have participated in it 81% 43% 62% 40% 8% 1% 56% 28% Sharing makes life more convenient and efficient Owning feels like a burden Providers have household income of $25K to $75K Participated as Car Sharing providers Like auto sharing because of more convenient access PwC page 5 Sources: PwC Analysis, Roland Berger (2014)

6 Car & Ride Sharing Congestion and higher car ownership costs are exposing potential owners to viable alternatives to car ownership Urbanization Car Sharing Attractiveness Rising fuel prices, insurance, and parking fees in congested urban centers are making car ownership impractical for most urban dwellers Ownership Costs A significant proportion of urban millennials are likely to be sharing cars vs owning them PwC page 6 Technology Penetration of mobile devices and mobile coverage, and improved sensor adoption and security have created a foundation for reliable and convenient sharing Convenience City congestion, traffic, limited parking, and minimal vehicle use make car ownership less convenient than public transit and other alternatives

7 Owning a Car vs Ride Share vs Taxi Sources: newsroom.aaa.com PwC page 7

8 Automated Driver Assistance Systems (ADAS) Variety of sensors, automotive technologies, artificial intelligence and machine learning techniques are driving growth of ADAS $230 bn/yr 31% 23% $60 Billion Cost to society from distracted driving % of Premium car customers who will definitely or probably purchase emergency stop assist for $800 Compound Annual Growth Rate of ADAS Globally from Size of ADAS market by 2020 globally PwC page 8

9 ADAS Sensors, Radar, LIDAR, Cameras, and other technologies coupled with Analytics is driving the era of Automated Driver Assistance PwC page 9

10 Frequency Severity Forward Collision Adaptive Headlights -3.2% -1.1% -2.3% -5.5% ADAS Lane Departure Blind Spot Detection -0.4% 0.0% -6.1% -20.0% ADAS technologies will reduce both frequency and severity of accidents paving the way for increased safety and reduced claims Park Assist -1.8% -1.1% PwC page 10 Source: PwC Analysis based on Highway Loss Data Institute reports on predicted availability of safety features and initial results of collision avoidance features,

11 Autonomous Vehicles or Self-driving Cars Falling costs of radar technology and advances in machine learning are already resulting in autonomous, self-driving vehicles 1,268,108 $9,200 $400 bn Number of autonomous miles driven by Google Car as of October 2015 Cost to operate driverless Uber cars annually instead of current $43,500 per year Accident related savings with self-driving cars in US alone Fully autonomous cars will be released (Audi 2017; Tesla 2018, Toyota 2020) PwC page 11

12 Autonomous Vehicles Autonomy of driving is defined by NHTSA across five levels with Level 4 signifying autonomous driving under all conditions with no human involvement PwC page 12 Level 0 No Automation Level 1 Functionspecific Automation Level 2 Combined Function Automation Level 3 Limited Self- Driving Automation Source: National Highway Traffic Safety Administration Preliminary statement of policy concerning automated vehicles Level 4 Full Self- Driving Automation

13 A First Drive Google Self-Driving Car Project Autonomous Vehicles Google Cars are already approaching Level 3 and Level 4 capability under normal road conditions PwC page 13 https://www.youtube.com/watch?v=cqsdwoahvlu

14 Tesla s Autopilot System is Creepy and Wonderful Autonomous Vehicles Tesla announced a software upgrade that allows autonomous highway driving PwC page 14 https://www.youtube.com/watch?v=3ycazwdqx_y

15 Mercedes-Benz Future Truck 2025 Autonomous Driving Autonomous Vehicles Autonomous buses, trucks, pods and convoys are also being built and piloted across the world PwC page 15 https://www.youtube.com/watch?v=5u5wxd-kass

16 Autonomous Vehicles CitiMobil2 Cities demonstrating automated road passenger transport (European Union) Autonomous buses, trucks, pods and convoys are also being built and piloted across the world Milton Keynes Autonomous Pods unveiled in Sep 2015 PwC page 16

17 Table of Contents 1. Disruptors to Auto Insurance 2. Impact on Auto Insurance 3. Case for Action Short-term. Medium-term and Long-term 4. Questions & Answers PwC page 17

18 Total Projected Losses (Billions) Reduction in losses from ADAS alone is ~11% by 2025 Impact on Insurance - ADAS Total Projected Losses, 2025* $30.0 $25.0 $ % ADAS will reduce severity and frequency of accidents thereby reducing overall losses as ADAS adoption increases $15.0 $10.0 $5.0 $27.6 $24.6 $- Baseline Without ADAS Technology Baseline With ADAS Technology PwC page 18 Source: PwC Analysis based on Highway Loss Data Institute reports on predicted availability of safety features and initial results of collision avoidance features,

19 Total Projected Losses (Billions) Reduction from ADAS alone ~35% by 2035 Impact on Insurance - ADAS Total Projected Losses, 2035* $40.0 $35.0 $30.0 $ % As penetration of ADAS increases the projected losses will decrease by 35% by 2035 $20.0 $15.0 $10.0 $34.1 $22.2 $5.0 $- Baseline Without ADAS Technology Baseline With ADAS Technology PwC page 19 Source: PwC Analysis based on Highway Loss Data Institute reports on predicted availability of safety features and initial results of collision avoidance features,

20 Total Projected Losses (Billions) Reduction in losses from ADAS &AV is ~31 % by 2025 Impact on Insurance ADAS & AV Total Projected Losses, 2025* $30.0 $25.0 $ % Car Sharing & AV will reduce car parc and combined with ADAS could result in a reduction in projected losses by 31% by 2025 $15.0 $10.0 $5.0 $27.6 $19.0 $- Baseline Without ADAS Technology Baseline With ADAS & AV Technology PwC page 20 Source: PwC Analysis based on Highway Loss Data Institute reports on predicted availability of safety features and initial results of collision avoidance features,

21 Total Projected Losses (Billions) Reduction in losses from ADAS &AV is ~52 % by 2035 Impact on Insurance ADAS &AV Total Projected Losses, 2035* $40.0 $35.0 $30.0 $ % As penetration of AVs increase over time the reduction in losses could be as much as 52% by 2035 $20.0 $15.0 $10.0 $5.0 $34.1 $16.4 $- Baseline Without ADAS Technology Baseline With ADAS & AV Technology PwC page 21 Source: PwC Analysis based on Highway Loss Data Institute reports on predicted availability of safety features and initial results of collision avoidance features,

22 Impact on Insurance Our conservative estimates are based on historical adoption and penetration rates of new technologies and no regulatory interventions 1 Estimate availability and penetration curves of each technology based on prior technology take-up rates 2 Use industry data to estimate impact on frequency and severity across loss categories 3 Project total impact on frequency, severity, and total loss Historical data demonstrates a ~15 year span between initial introduction and 95% new vehicle availability. The total car population takes ~30 years to reach 95% penetration Loss categories include Bodily Injury, Liability and Collision We calculate a linear baseline projection using claims data. Based on expected penetration and impact of each technology, we estimate the total effect by 2025 PwC page 22 Source: PwC Analysis based on Highway Loss Data Institute reports on predicted availability of safety features and initial results of collision avoidance features,

23 Legislative Moves When it comes to autonomous cars in Canada, Ontario is the center of activity Premier Kathleen Wynne has made autonomous vehicles one of the provincial transport minister's priorities (The Star, Oct 2015) Ontario moves to permit testing of self driving vehicles testing of autonomous or self-driving vehicles can begin as early as Jan. 1 (The Globe and Mail, Oct 2015) Ontario Ministry of Transportation (MTO) has recently put forward a proposal to safety test autonomous vehicles on Ontario roads for a period of 5 years. More than 100 companies in Ontario are involved in products and services for self-driving vehicles: PwC page 23

24 In 2014 Impact of Ontario 44% of auto premiums in Canada were written in Ontario of all auto premiums written in Canada were 44% written in Ontario 57% of all private auto premiums written in Canada were written in Ontario Even in the highly unlikely case that other provinces do not follow Ontario, the weight of the province alone is enough to disrupt Canadian auto insurance market. PwC page 24

25 Table of Contents 1. Disruptors to Auto Insurance 2. Impact on Auto Insurance 3. Case for Action Short-term. Medium-term and Long-term 4. Questions & Answers PwC page 25

26 Case for Action The impact on insurance will be small at first, but would accelerate once AV adoption reaches a tipping point substantially reducing consumer auto insurance market Only 4 states have passed legislation to address autonomous vehicles; 16 are considering, and 9 have failed to pass measures 1 Autonomous technology is projected to add $10,000 2 to the cost of the car; this is expected to decline to $3,000 by % of consumers feel that autonomous cars will not be safe and 28% believe that they will never own one 3 Regulation Investment Costs Public Trust and Perception Convenience and Safety Transportation and service Efficiencies Reduced Transportation Costs Autonomous cars will remove variability and improve driving conditions Commute times will drop due to decreasing congestion; public transit and car sharing will cover larger areas, increasing availability and reducing wait times Autonomous adoption can reduce transportation costs of car ownership through alternative transportation solutions PwC page 26

27 Case for Action Four possible scenarios over the next two decades ranging from small impact to potentially a massive consolidation A (Loss Slow Adoption reduction offset by premium growth) B (Moderate Shrinking Premium adoption fuelled by regulators) C (Insurance Bundled Insurance included with Cars self insured) D (Elimination Death of Auto Insurance of losses with fully selfdriving cars) PwC page 27

28 Case for Action R I S K Insurers need to be prepared to innovate with their offering and be able to target new business customers and eventually seek alternative growth areas Risk Reduction Risk Slicing Risk Shifting Risk Elimination PwC page 28

29 Short-term (3-7 yrs) Medium-term (8-15 yrs) Long-term (15+ yrs) Case for Action Insurers who want to survive and thrive in the long-term should start acting now to innovate and better understand the changing ecosystem PwC page 29 Embrace alternative forms of insurance (e.g., MetroMile) Partner with auto manufacturers to collect data on ADAS and AV technologies Build capabilities on usage-based underwriting and risk slicing Tighten UW guidelines for individual consumers Shift primary focus towards automanufacturers and personal mobility as a service providers for marketing, distribution and product development Consolidate underwriting capacity as premiums start shrinking Develop innovative products bundled insurance, self-drive mode insurance Consolidate personal and commercial auto Explore alternative revenue streams including - commercial auto logistics, becoming a personal mobility as a service provider etc.

30 PwC page 30 Questions?

31 For additional information contact Dr. Anand S Rao Twitter: AnandSRao Mehrad Ahari Authors Dr. Anand S Rao Joseph D Voyles Scott Fullman Dr. Mark Paich Ilana Golbin Spencer Allee Lyle Wallis Aparajita Bijapurkar Balaji Jayakumar pwc.com

32 Draft Thank You 2014 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. * Data sources via similarweb PwC

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