Analyzing the Implications of Self-Driving Cars for the Auto Insurance Industry

Autonomous vehicles could have profound positive and negative impacts on the auto insurance industry. Self-driving cars could massively reduce accidents by eliminating human errors and, in the long run, could shift the liability from drivers to manufacturers, making personal auto insurance obsolete. We believe that fully autonomous vehicles are closer than most people think from a technology perspective, but the period from technological development to mass adoption is significantly higher than the market anticipates. In our most aggressive adoption scenario, we think most cars on the road could be automated to a level where insurance is largely unnecessary within 20 years. We don't think investors should discount auto insurance stocks based on this risk today. But with the group trading at a hefty premium to historical book multiples, from a long-term perspective, we question whether current valuations are justified for businesses that might become obsolete.