Self-driving cars could have huge implications for the insurance market as growing use of the vehicles stands to drastically reduce accidents and resultant claims, according to Outsurance CEO Marthinus Visser.
In an interview after the group’s interim financial results, Visser said though autonomous vehicles have not yet materialised as an immediate threat, their potential widespread adoption could disrupt the traditional car insurance market significantly since the premium pool is essentially built around the cost of claims.
“If self-driving cars were going to be extremely successful and readily available everywhere, it would mean that people make far fewer accidents, or cars make far fewer accidents. It will mean the market will shrink,” he said.
Visser warned that such a reduction in claims could also lead to shrinking revenue pools for insurers, while fixed cost structures would remain under pressure, potentially threatening the sustainability of many underwriting models.
For now, though, current developments in vehicle technology were fuelling growth in the insurance sector, he said.
Partially autonomous vehicles, which is the state of the technology today — especially in SA — have not reduced the number of claims. Instead, they are driving up repair costs because the advanced technologies are expensive to replace.
“Overall, that is triggering faster growth in car insurance than what we thought was going to be possible five years ago,” Visser said.
The group on Friday reported improved earnings for the six months to end-December after fewer natural peril claims were incurred by Youi and Outsurance SA.
Strong organic premium growth and higher investment income also contributed to a 52.9% increase in normalised earnings to R2.16bn.
Normalised earnings per share were up 53% to 138.6c, while a dividend of 88.6c per share was declared, up 44.8%.
Outsurance’s property and casualty business grew gross written premiums by 17.4% supported by “satisfactory” organic growth across the operating segments.
Premium inflation continued to be affected by elevated claims cost inflation and the earn-through of the pricing actions taken in the prior year.
In rand terms, Youi’s translated premium growth rate was negatively affected by the strengthening of the rand against the Australian dollar.
Annualised new business increased by 17.9%, from a higher base achieved in the prior period. The claims ratio which decreased from 59.1% to 53% is attributed to the materially lower natural perils claims, improvement in working claims experience and higher prior year reserve releases.
Through disciplined cost control, Outsurance SA and Youi delivered structural improvements in the cost base of all the operating segments.
The group said the SA group’s share-based payments expense linked to the employee share option scheme remained a volatile and significant expense in the first half.
The final tranche of the employee share scheme vests in September, after which all the vintages of long-term incentives will be transitioned to the new conditional share plan.
This plan is significantly less geared than the employee scheme, which will result in a more stable expense base, the group said.
Outsurance Ireland, which officially launched in May 2024 and is performing in line with expectations, incurred R218m in normalised start-up losses due to an increased operational cost base post launch, and the onerous losses recognised for new insurance contracts issued.
The group expects premium inflation to normalise in line with the trend of general inflation over the next 12 months, but in the long run it expects premium inflation to be higher than CPI due to the effects of climate change, penetration of electric vehicles and increased technology penetration in new vehicle models.
The lower inflationary environment and interest rates are expected to support a more favourable real growth outlook for the SA and Australian operations.
Recent initiatives to grow revenue are increasingly translating to profit growth. Cost discipline, a critical ingredient to competitive pricing, will remain a core focus over the next year, it said.
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