Over the last few years, there have been several reports that have appeared to suggest that the auto insurance industry could be under a major threat from the influx of driverless cars in the near future. Last year KPMG published a report predicting that by the year 2040, the auto insurance industry would have shrunk by a whopping 60%.

This is a mammoth figure, especially given the fact that the automobile industry is expected to continue growing in tandem with global adult population growth and urbanization. Apparently, the KPMG report pegs this number on the expectation that accident frequency could decline by as much as 80%. At that rate, most insurance companies would be looking to offer competitive auto insurance discounts to motorists. It will be a market where premiums are low, which means that companies will be chasing in order to grow the auto insurance pools.

The report notes that with 90% of motor vehicle accidents caused by human error, driverless cars could reduce the number of accidents happening per year, thereby leading to lower loss costs in the personal auto sector. The report predicts that this could lead to a $75 billion drop in the current annual loss costs of $125 billion to about $50 billion.

Now, by looking at those numbers, it would be ideal to say that driverless cars could be a threat to the auto insurance industry in the near future. In addition, it’s not just about the reduction of the number of accidents per year. It’s also about the challenges of drafting those insurance policies.

Currently, it is pretty easy to draft policies and premiums because, as it is noted in the KPMG report, 90% of accidents are due to human error. With driverless cars, it will be no longer automatic to blame human error, which raises the question to whom the insurance companies will bill for the monthly premiums. Do they invoice the vehicle manufacturer or the vehicle owner?

Certainly, since the vehicles will be self-driving, it makes perfect sense to peg most of the accidents that might occur to the vehicle manufacturer and not the owner. Furthermore, as LA Times reports, driverless cars will not automatically replace all other types of cars on the roads.

This means that they will still share the road with those that have drivers behind the wheel. In the case of an accident involving a driverless car and a car with a driver, it will be complicated to draw out insurance contracts and premiums for such situations.

Therefore, this means that the driverless car market is not only facing technological and economic challenges, but it also faces a major hurdle in regulation and policy. As such, companies like Alphabet (GOOG) (GOOGL) and Apple (AAPL), which are among the top contenders to disrupt the auto industry will have to be more patient than most publications seem to suggest.

Moreover, there are also questions regarding the reliability of a driverless car, especially given recent events. While some motorists might be quick to embrace the idea of ceding control to a computer, most of them will have questions.

For instance, the electronic vehicle manufacturer, Tesla (TSLA), is currently in a tussle to answer the questions regarding the safety of its Model S auto pilot program, following a crash that killed a driver on board.

While there is debate over whether or not the autopilot was on when the car crashed on a divided highway in Florida last month, it would be hard to clear any doubt lingering over the safety of a self-driving car.

Conclusion

In summary, this means that the auto insurance industry still has some valuable time before the inevitable disruption by the driverless car market.

This market is facing a massive hurdle in regulation and policy, it might also be facing economic challenges due to the cost of the vehicles, and it won’t be a blanket replacement of driven cars.