Caveat: I know very little about economics and find this stuff confusing.
Here's how I assume it would work. For an insurance company to be profitable, premium payments need to be larger than claims payouts.
If we assume self-driving cars will be a lot safer, then claims payouts will drop significantly. If we assume insurance companies compete with each other, then that opens up their margins and eventually that will contract again as they all lower premiums to compete.
The end result is a smaller total amount of cash flowing through those businesses. The whole industry will contract because there's just less need for it to exist. You can think of insurance companies like a farm that harvests risk. With less risky automobiles, there's simply less crop for them to reap.
Here's how I assume it would work. For an insurance company to be profitable, premium payments need to be larger than claims payouts.
If we assume self-driving cars will be a lot safer, then claims payouts will drop significantly. If we assume insurance companies compete with each other, then that opens up their margins and eventually that will contract again as they all lower premiums to compete.
The end result is a smaller total amount of cash flowing through those businesses. The whole industry will contract because there's just less need for it to exist. You can think of insurance companies like a farm that harvests risk. With less risky automobiles, there's simply less crop for them to reap.