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Moody's: Driverless cars to dent insurers' profitability in long term

Moody's said March 29 that accident avoidance technologiesapplied in cars could boost insurers' profits in the medium term.

The agency expects that widespread use of the technology willcause a decline in the number of accidents because of features such asautomatic braking, adaptive cruise control and lane departure prevention.Moody's believes that as many insurers will not lower their pricing right away,waiting instead until they are sure that declines in the frequency of accidentsare lasting, their profitability could rise over the next five to 10 years.

Moody's noted, however, that in the long term self-drivingcars could dramatically reduce auto insurers' profits as reduced accidents willtranslate to lower premiums. The impact can be significant for the insurancesector as personal auto insurance is the largest property and casualtyinsurance line of business in many countries, including the U.S., Moody's said.

Achieving widespread adoption of self-driving cars will takedecades given technological, regulatory and consumer hurdles, Moody's said."Because the anticipated change to the entire auto insurance industry willbe gradual, we believe innovative insurers will be able to adapt theiroperations and balance sheets to these changed circumstances."

Moody's believes that the U.S. will be slower to shift todriverless cars than Asian countries such as China, Japan and South Korea.Latin America could be slower to embrace self-driving vehicles, Moody's said,adding that while parts of Europe could be faster than the U.S. to adopt thesecars, a strong driving culture, privacy concerns and limited purchasing powerof younger consumers could potentially slow down adoption of self-drivingvehicles in other European countries.