UK motor insurance market could shrink up to 41% by 2040 – Bank of England

In just over two decades, the UK motor insurance market may shrink by either 21% or 41% due to the emergence of autonomous vehicles (AVs), according to the new forecast by the Bank of England (BoE).

 

The BoE said in its latest quarterly bulletin released on Friday that driverless cars would account for 80% of new vehicle sales in 2040, with the technology having “profound effects.”

 

“Our current forecast is that the motor insurance sector will reduce in size, but that this is likely to be a gradual shift over the next two decades,” said the BoE bulletin, which was based on a survey of technology and insurance specialists.

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The BoE expects market premium to decline by 21% from £11.7 billion in 2015 to £9.2 billion in 2040.  In an alternative scenario wherein AVs are assumed to be adopted faster, travel more miles and be 20% safer, the market is predicted to contract by 41% to £6.9 billion over the same period.

 

According to the BoE bulletin, a gradual introduction of AVs may give insurers time to adapt. However, the regulator said insurers need to transform aspects of the current insurance value chain, including claims management, underwriting and product development – areas which are expected to be impacted by driverless cars.

 

In order to succeed in the age of driverless cars, the BoE expects insurers to increasingly rely on partnerships with technology firms and manufacturers.

 

In February, the Department for Transport announced that it will extend compulsory motor insurance requirements to include the use of AVs. Under the new rules, driverless car owners will need to have a single insurance policy for both the motorist when driving and for the vehicle when it is in self-driving mode.