The U.S. personal auto insurance sector could shrink by 60% within 25 years as autonomous vehicles catch on, vehicles become safer and both trends reduce the number of accidents, KPMG says in a new report.

At the same time, insurers have been quick to respond to anticipated market changes when driverless technology takes hold, the firm says.

KPMG predicts that there could be as much as an 80% potential reduction in accident frequency by 2040 if auto and safety trends continue. If this happens, loss costs and premiums could drop, although accident expense could hit $35,000 on average, up from $14,000 now.

If the market shrinks, then consolidation and more competition would follow, KPMG says.

“The risk profiles of vehicles is changing daily, and the subsequent drop in industry loss costs would reduce the size of the auto insurance market, trigger consolidation in the personal lines space, attract new competitors and force dramatic operational changes within carriers,” says Jerry Albright, principal in KPMG’s Actuarial and Insurance Risk practice.

KPMG found an insurance industry skeptical that such a transformation will happen any time soon. The firm notes that few insurance carriers have taken action to develop policies that would address autonomous vehicles, because most believe the change will happen far into the future, if at all.

The report identifies eight elements that KPMG says could drive the shift to autonomous vehicles, and the resulting change in the personal auto insurance sector:

Integrity of technology. This would be a convergence of already existing technologies that helps generate mass adoption of driverless autos.

Capability accessibility. Google, Tesla, Apple and other high-tech companies are moving toward fully-autonomous vehicles. However, traditional manufacturers are not that far behind, the firm says, with each new auto model including more autonomous driving technology elements.

Infrastructure availability. While initial driverless technology enables use of existing roads, KPMG predicts that road infrastructure will become “smart,” communicating with vehicles to enable more sophisticated driverless autos.

Regulatory permission. As of early 2015, 16 states including the District of Columbia passed or introduced bills relating to self-driving autos. California, Michigan and Nevada are likely to follow, the firm says. U.S. regulatory agencies are gathering data on what standards to require for these vehicles.

Legal responsibility. KPMG says that legal issues regarding who is responsible in a driverless vehicle when an accident occurs will likely be resolved along with advances in autonomic driving technology. Insurance companies can develop policy covers that protect manufactures of driverless vehicles and individuals who use them.

Consumer adoption. Consumers will embrace autonomous vehicles once they understand potential benefits of the technology, such as multitasking, faster commutes, safer travel and more independence. The key to broader adoption, the firm says, is consumer education and awareness.

Mobility services. Driverless vehicles could have an implication on ride hailing, with downward pressure on their numbers due to efficiency of usage.

Data management. Autonomic driving generates and needs large amounts of data, and KPMG says it expects this to grow rapidly as the interaction between vehicles, infrastructure and other data sources grows. Data management, storage, analytics and security will be critical to helping autonomous vehicles to become mainstream.

If these eight elements can be realized, KPMG says that it envisions four potential phases taking place that would ramp up widespread and broader adoption of autonomous vehicles. They are:

Training wheels, or the introduction to driverless vehicles as manufacturers roll out some of the early versions and underlying technology. High-tech companies, meanwhile, are showing interest in fast-tracking production of fully-autonomous vehicles.

First gear. Partial autonomous driver technology could come out by 2017, allowing a wide range of consumers to experience the technology and see how safe and reliable it can be, shifting market perceptions. Regulatory standards for vehicle-to-vehicle communications will follow.

Acceleration. KPMG says that fully-autonomous vehicles could become more common within five years, with technology enabling the likely embedding of vehicle-to-vehicle communications in all new vehicles. Wider scale of this technology would drive down costs and make it more widely available.

Full speed, with a broad use of autonomous driving technology hitting by 2025. At this point, all new vehicles could have autonomous driving capabilities, with existing vehicles being retrofitted. Through the next 15 years after that, the autonomous driving landscape could become more sophisticated, with integrated autonomous driving, where vehicles can also communicate with each other. If this can be achieved, KPMG says it sees “a new normal” arriving by 2040.

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