Autonomous vehicles will shift the insurance paradigm

The integration of advanced technologies within the automotive industry is redefining vehicle design and functionality – transforming conventional into autonomous vehicles (AVs) – and profoundly changing the motor insurance sector.

The consensus among insurers, automotive manufacturers and industry specialists is that AVs will transform the motor insurance landscape. Insurers will be forced to innovate to preserve their competitiveness. How quickly is this disruption likely, and what are the strategic responses to navigate this technological paradigm shift?

For more than a century, motor insurance has been a profitable risk pool for the global insurance industry. Around USD 920 billion of the USD 2.3 trillion in worldwide property and casualty (P&C) premiums originated from motor insurance at the end of 2025, according to insurer Allianz. Of this total, approximately 80% was generated by personal motor insurance, and the rest in commercial vehicles.

The US Department of Transportation classifies vehicle automation on a framework of five levels. In practice, AV discussions generally focus on levels 3 and 4, with level 5 corresponding to vehicles that are fully driverless under all conditions. These three categories of ‘automated’ through ‘autonomous’ will act as catalysts, forcing motor insurers to redesign their business models.

Fewer accidents, bigger claims

Over more than a century, motor insurers have accumulated vast datasets on driver behaviour, accident frequency and claims costs. One of the most enduring trends is the continuous improvement in vehicle safety and the corresponding decline in accident frequency. In 1923, the US for example recorded 80 road fatalities per 100,000 motorists, according to the National Highway Traffic Safety Administration. A century later, in 2024, this figure had fallen to approximately 18 fatalities per 100,000. The improvement is the result of a combination of safer vehicle design, enhanced road infrastructure, better lighting, stricter licensing requirements, improved driver education, greater awareness of drink-driving risks, and mandatory seatbelt legislation.

…accident frequency should decline substantially…

However, human error has remained relatively constant factor. More than 90% of road accidents in 2024 were attributable to driver mistakes, according to Swiss Re. More recently, advances in Advanced Driver Assistance Systems (ADAS) have enabled vehicles to intervene when drivers make mistakes, significantly reducing both accident frequency and fatalities. As level 3, 4 and 5 vehicles progressively reduce the need for human intervention, accident frequency should decline substantially, perhaps by as much as 80% by 2040 in the US according to a KPMG study. That would materially improve the motor insurance loss ratio – defined as claims incurred divided by net written premiums – and industry expectations currently expect a 3%-to-6% annual decline in claims costs over the coming decades.

Conversely, the severity of the average claim is expected to increase significantly. The rising technological sophistication of vehicles will increase repair costs. A level 5 vehicle currently costs approximately 3.4-times more to repair than an equivalent manually-operated level 0 vehicle, Swiss Re estimates.

In parallel, the gradual adoption of semi-autonomous and fully autonomous vehicles is expected to transform the global automotive market. Motor insurers are likely to face three main challenges over the coming decades: fewer accidents, more expensive technology-enabled vehicles that raise the cost of claims, and large-scale mobility-sharing ecosystems. This latter would alter vehicle ownership patterns and reduce the total addressable market (TAM) for personal motor insurance.

Managing the transition: short-term insurance challenges

These factors have conflicting effects on underwriting profitability. Lower accident frequency is generally favourable, while higher severity places higher pressure on claims costs. Meanwhile, a smaller global vehicle fleet – as a result of more shared mobility – would be reduce overall premium volumes.

Vehicle users can broadly be divided into four categories: 1. Professional vehicles such as trucks and logistics – which are unlikely to be materially affected by the rise of autonomous driving. 2. Performance vehicles, whose drivers value characteristics such as acceleration and handling, and which are likely to see only limited disruption. 3. Luxury vehicles, whose owners see cars as status symbols, collectable assets, and long-term investments. Demand here should remain largely unchanged. 4. Finally, transportation, where vehicles are mostly a means of travelling from one place to another. As the largest mass-market segment, this is the most vulnerable category to disruption from shared autonomous mobility solutions.

…the global motor insurance risk pool is likely to stabilise…, before entering a period of structural decline

Overall, a base case scenario for the period 2025–2050 points to the global number of vehicles rising until approximately 2035, driven by rising middle-class populations in emerging markets seeking to own private vehicles. In developed economies, vehicle fleets may begin to decline from around 2030 as shared mobility platforms - including robotaxis and enhanced public transportation systems – offset new vehicle registrations. Starting in 2040, reductions in accident frequency should outweigh a rise in claims severity as increasing numbers of semi-autonomous and autonomous vehicles generate significant economies of scale. Consequently, the global motor insurance risk pool is likely to stabilise between 2035 and 2040, before entering a period of structural decline that cuts the industry’s total addressable market by 2050.

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Evolving liability

Personal motor insurance generally combines two broad categories of coverage: physical damage, and liability, which includes personal injury and third-party costs. Widespread autonomous vehicles have the potential to change the distribution of claims costs and the allocation of legal liability. Specifically, as AVs become more common, liability for accidents may shift from drivers to vehicle manufacturers and software providers.

This transition would have several important implications. First, liability insurance costs may become embedded within AVs’ purchase price. As a result, strategic partnerships between insurers and manufacturers will likely become the most effective model.

…liability insurance costs may become embedded within AVs’ purchase price

Second, the total addressable market will contract. Historically, liability-related claims represented a larger share of overall motor insurance losses than physical damage claims; approximately 80% of total motor claims costs are related to injury and the associated costs of litigation. Shifting liability exposure to manufacturers would therefore accelerate the decline of insurers’ total addressable market, and pressure revenues.

New claims management and pricing models

Partnerships with manufacturers will provide insurers with access to real-time vehicle data, enabling their increasingly sophisticated pricing and risk assessment models. At the same time, the complexity of AV-related accidents – which may involve hardware failures, software defects or human interaction – will require new claims settlement frameworks.

Autonomous technologies will extend beyond self-driving vehicles to autonomous shipping systems, robotics and artificial intelligence-enabled machinery. While these technologies introduce new risks, they also create new growth opportunities for P&C insurers. These new risk pools can be subdivided into technological risks around hardware failures, or software and cyber vulnerabilities and their financial losses. The highly connected nature of AVs also open them to data breaches, making cyber insurance increasingly important. Second, shared autonomous fleets create operational risks, including network disruptions. Third, autonomous systems also raise ethical and regulatory questions, such as how they should respond in an unavoidable accident to balance the safety of passengers versus pedestrians, potentially creating demand for new liability insurance categories.

…highly scalable and diversified P&C insurers are likely to emerge as long-term winners

Autonomous vehicles will therefore change not only the size of the motor insurance industry’s market but also every component of its value chain, from product development to risk management, pricing, claims settlement and distribution. The industry possibly has a decade in which to adapt before the most significant reductions in claims begin to materialise. Successfully managing this transition period - characterised by falling accident frequency but rising claims severity – will be critical to underwriting profitability. In the end, only highly scalable and diversified P&C insurers are likely to emerge as long-term winners. These businesses may increasingly act as industry consolidators, reshaping the competitive landscape and navigating the technological disruptions created by autonomous vehicles.

However, the emergence of AVs is unlikely to affect the P&C insurance sector uniformly. Leading incumbents with well-diversified premium portfolios across business lines and geographic regions are likely to play the role of consolidators. That could see them acquiring or supporting smaller-scale insurers and monoline players with significant exposure to AV-related disruption.

Conversely, we would expect technologically advanced motor insurers with large, established franchises and access to extensive driver data to be well positioned to partner with both original equipment manufacturers (OEMs) and software providers. These insurers should manage to leverage their expertise and data to help shape the future of the motor insurance market and adapt to the evolving mobility landscape.