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Moody's: Auto Insurers Face Long Terms Challenges From Self-Driving Cars

Global Credit Research - 29 Mar 2016

New York, March 29, 2016 -- Accident avoidance features in vehicles, such as automatic braking, adaptive cruise control, and lane departure prevention, are becoming more prevalent and will lead to lower accident frequency in the next five-to-ten years, a benefit for auto insurers. Longer term, self-driving cars could translate into significantly lower premiums and profits for insurers as the number of accidents declines dramatically, said Moody's Investors Service.

A new report from Moody's noted that while self-driving cars will likely force auto insurers to rethink their business models, widespread adoption of this technology is decades away, allowing insurers plenty of time to adapt. In the near term, accident avoidance technologies will have a more immediate, positive impact on auto insurers.

"Accident avoidance technologies are becoming more common in cars which should reduce the number of accidents and boost insurer profits," said Jasper Cooper, Moody's Investors Service Assistant Vice President. "However, auto insurers will also face higher auto repair costs from embedded cameras and sensors which are often located in or near bumpers."

Automakers like Ford, Nissan and Tesla, have announced plans to introduce self-driving cars in the next few years, which could initially be optional on luxury vehicles. "Widespread adoption of self-driving cars is still decades off, but it raises questions of what an auto insurer's role will be in a world with far fewer accidents," added Cooper. "Regulators, lawmakers and courts will have to determine how liabilities are shared among insurers, automobile manufacturers, and technology companies."

Moody's report noted that once self-driving cars are mainstream, accident frequency will fall sharply translating into significantly lower premiums and, consequently, lower profits for auto insurers. The industry impact could be dramatic over the very long term given that personal auto is the largest P&C insurance line in many countries including the US.

Despite the uncertainties self-driving cars cast over the auto insurance industry, insurers have time to innovate and diversify in order to stay competitive in a potentially narrower market. Moody's expects significant industry changes including consolidation, failure, and the potential rise of new entrants as self-driving cars have a transformative impact on the global auto insurance industry.

The report, "P&C Insurance - Global: Self-Driving Cars Could Send Auto Insurance Industry Skidding," is available to Moody's subscribers at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1019643.

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NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Jasper Cooper, CFA
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Simon Harris
MD-Gbl Ins and Mgd Invests
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service, Inc.
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JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's: Auto Insurers Face Long Terms Challenges From Self-Driving Cars
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