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'Autonomous Cars: Cool To Discuss, Too Early To Be Investible,' Citi Says

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In a report issued Thursday, analysts at Citi discuss issues in relation to the insurance industry and the emergence of autonomous vehicles. While they believe it is still too soon to forecast the outcome for auto insurance, it is not too early to look into some of the implications.

According to the note, the firm performs “sensitivity analysis on reasonable near-and longer-term scenarios, which suggest that any major threat to auto insurance is 15-25 years away, and in the near-term there could even some benefit if insurers, such as Progressive Corp (NYSE: PGR) and Allstate Corp (NYSE: ALL) can bank some of loss trend improvements most assume will happen even in manual vehicles.”

Looking at the shorter term, Citi believes that the cost of insurance could decline by 10 to 15 percent for semi-autonomous vehicles. However, the report adds, “it is not clear that this would all be felt by auto insurers initially, given the lag in correlating new claim data to analyzable pricing actions; there could be a lag similar to what we see from current price/trend data. Also, falling frequency could be offset by severity even here, as has been the case throughout history.”

Thinking about a longer-term scenario, auto insurers are looking at a dire panorama. As fewer people drive and driving frequency falls -- as other alternatives like hiring autonomous car services could prove to be more convenient -- demand for insurance should plummet as well. Citi’s scenario assumes a peak in premiums by 2030; thereafter, they expect the industry to “waste away.”

However, this “Futurist Scenario” as Citi calls it is somewhat extreme. The report provides a more moderate outcome assumption: “we think that autonomous and manual vehicles will coexist for a long time, and this renders all trends more moderate (the “Gradualist Scenario”). The top 15 personal auto insurers could benefit from consolidation, and forestall peak premiums to 2035, and profit growth to 2045. Commercial lines (ACE, CB, AIG, TRV) could also benefit through new liability coverages that do not exist today.”

Latest Ratings for PGR

DateFirmActionFromTo
Dec 2020Keefe, Bruyette & WoodsUpgradesUnderperformMarket Perform
Nov 2020Morgan StanleyMaintainsEqual-Weight
Nov 2020BarclaysInitiates Coverage OnUnderweight

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View the Latest Analyst Ratings

 

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Posted-In: Autonomous Cars Citi self-driving carsAnalyst Color Analyst Ratings Tech

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StockFirmActionPT
DISCitigroupMaintains175.0
AYLANoble Capital MarketsInitiates Coverage On29.0
SHOPSusquehannaInitiates Coverage On950.0
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WORKStephens & Co.Downgrades
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