Will Tesla Robotaxis Kill Auto Insurers? Hardly.

Tesla robo-taxi testing in Austin, Texas, earlier this year. (Tim Goessman/Bloomberg)

Investors have worried for years that self-driving cars would destroy the economics of the auto insurance business. Things, however, aren’t that dire for Progressive and Allstate. The insurers might even welcome Elon Musk’s robo-taxi revolution.

Bears believe self-driving cars pose an existential threat to the auto insurance industry, but data suggest otherwise,” wrote BofA Securities analyst Joshua Shanker in a Thursday report.

Accident-frequency trends haven’t been dramatically impacted by improving driver assistance technologies. What’s more, shifting the liability from the driver to the car might improve insurer profitability, he says.

The “sell thesis” has been around for the better part of a decade, probably since the first time Musk predicted Tesla cars would drive themselves in 2016.

He also predicted that Teslas would drive themselves in about a year every year since then. His electric-vehicle company did launch a self-driving taxi service in Austin, Texas, in June, an impressive accomplishment. Barron’s has tested Tesla’s highest level driver assistance product, called Full Self-Driving, many times. It’s impressive and has consistently improved. It can now do most of the driving most of the time, but the system still requires human supervision.

Between 1913 and 2023, the number of motor-vehicle deaths in the U.S. rose almost 1,000%, to roughly 45,000 from 4,200. Frequency, of course, declined. There were many fewer cars on the roads in 1913 than in 2023.

Safety equipment, such as air bags and anti-lock brakes, improved things materially. AI-trained self-driving cars, eliminating driver distraction, are set to usher in a new era of reduced risk. But cars can last 20 years, and the proliferation of self-driving technology is in its very early stages. Traditional auto insurers will have things to insure for many years to come.

“A more sophisticated bear thesis argues that liability will shift away from personal auto carriers toward commercial carriers as car makers,” added Shanker. Insurance will be held by robo-taxi fleet operators and not by individuals. That carries a hidden benefit to the insurance industry, though. Insurers lose money on personal liability, says Shanker. “Auto [insurance] carriers would happily process claims and subrogate payments to newly liable commercial insurance parties” when fleets of Waymos and Teslas dominate the streets.

A hidden benefit of a robo-taxi revolution might just be the elimination of personal auto insurance. No one likes to pay it, and prices have skyrocketed since the pandemic. Premiums are up more than 50% since the pandemic.

There are a couple of reasons for that. Cars are more expensive. The average transaction price for a new car in America is about $49,000, up roughly $11,000 from before the pandemic. That makes used parts more expensive. Mechanic rates have risen, too.

Shanker rates Progressive and Allstate Buy. His price targets are $344 and $275, respectively. Progressive stock traded recently for about $248. Allstate stock traded for about $207.

Shanker, of course, is only one analyst. About half of the analysts covering Progressive stock rate shares Buy, according to FactSet. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. Almost two-thirds of analysts covering Allstate rate shares Buy.

Valuation might have something to do with that. Allstate trades for about nine times estimated 2026 earnings, according to FactSet. Progressive trades for about 15 times, but that is about its lowest price-to-earnings ratio of the past five years.

Based on that, investors aren’t willing to buy Shanker’s argument just yet. Still, his points are worth thinking about as self-driving technology begins to spread.

Write to Al Root at allen.root@dowjones.com