Driverless cars may dramatically reduce premiums and profits, but innovative insurers have three decades to adapt, according to a Moody’s report.

The ratings agency says accident frequency will “fall sharply over time”, leading to significantly lower premiums and profits.

Most cars could be self-driving by 2045, with the technology universal by 2055.

With motor insurance responsible for nearly 40% of insurance industry revenue, the impact “could be significant”.

However, Moody’s says motor insurers may increase profits thanks to the technology over the next decade.

Tools such as automatic braking and adaptive cruise control will roll out in new fleets over the next few years, cutting down on crashes.

“Intelligent technologies will reduce accident frequency, a credit positive for property and casualty insurers over the medium term,” the report says.

Many insurers will not reduce premiums until they know accident rate declines are lasting, which could lift profitability over the next 5-10 years.

“That said, reduced accident frequency would be partially offset by higher costs of replacement parts with embedded technology.”

Moody’s says innovative insurers have time to adapt.

“Regulators, lawmakers and courts will have to determine how liabilities are shared among insurers, automobile manufacturers and technology companies.”

The insurance model may shift to protecting car manufacturers and technology producers.

Volvo has already announced plans to accept liability for accidents when its cars are in autonomous mode. However, it is not clear whether car manufacturers and suppliers will want to take on these product liabilities long-term.

Moody’s suggests some car manufacturers may self-insure for most claims and buy reinsurance for software problems.

In this case they may acquire motor insurers to gain claims infrastructure and expertise.

Alternatively, car manufacturers and suppliers may buy product liability insurance, and those insurers could process claims.

Whatever happens, Moody’s expects significant change. “Some innovative insurers could respond quickly and end up dominating the remaining auto insurance market and/or there could be completely different alternatives to the ones we have considered.”