After a rocky start, driverless cars are becoming a reality, from driver-assist features to fully automated driving. One report puts the number of autonomous cars on the road at 10 million over the next three years and the Honda Americas R&D chief has set a goal of zero crashes for the company by 2040.

#-ad_banner-#Everyone is getting in on the future of driving, with seven major car manufacturers already selling models with driver-assist features. Rideshare providers like Uber and Lyft are partnering with car companies to fully automate their businesses.

As the media centers on the innovation and Wall Street focuses on the manufacturers, one industry nobody is talking about could see a boom in profits over the next several years.

The Future Of Driverless Cars Is Already Here
The trend to driverless cars hit a roadblock last year when a Florida man was killed while using the self-driving features in his Tesla Model S. Tesla has since rolled out upgrades that Elon Musk says could make the cars, “three times safer than those without the system.”

Despite the earlier setback, the movement now appears unstoppable. Outside of purely autonomous cars, there are also an array of features like brake assist that are already helping to correct human error in driving. The Society of Automotive Engineers (SAE) has defined the trend on five levels of automation from Level 1 cars which include collision mitigation, braking and steering assistance to Level 5 cars which would be fully automated.

Ford said it will have a fully autonomous car without a steering wheel by 2021. Volvo and Uber also recently announced their partnership to develop a driverless car. BMW, Audi, Honda, Mercedes-Benz, Nissan, Tesla, and Volvo already have models available with Level 2 features and the first Level 5 cars may only be a few years away.

The Industry That Will Boom And Then Bust With Driverless Cars
According to the NHTSA’s National Motor Vehicle Crash Causation Survey, “human error is the critical reason for 93% of crashes.” Contributing to this is high employment, increasing distractions from electronic gadgets, and lower gas prices that have caused a surge in auto accident claims over the last few years.

Auto insurance providers aren’t exactly complaining — instead, they are raising premiums to cover the higher frequency of claims. Insurance rates jumped 6% on a year-over-year basis through April of last year, the fastest increase since 2003.

This trend could reverse as driverless cars and other features become more common and reduce the human error factor. KPMG estimates that self-driving cars could lead to 2,500 fewer accident-related deaths between 2014 and 2030.

The rise of driver-assisted features could be a boom for car insurance companies over the next several years. Taking the driver out of driver error will mean fewer accidents. Insurance premiums will not come down instantly to adjust for fewer accidents and this could drive record profits.

Progressive Corporation (NYSE: PGR) holds the fourth-highest share of the U.S. car insurance market at 7.5%. Its primary business is car insurance, with auto policies accounting for 62% of 2015 policies. Progressive was one of the first property-casualty insurers to develop its direct channel of selling online and it shows in a lower expense-to-sale ratio of 21% versus the industry average 28%.

Progressive recently added homeowners insurance through an acquisition, a move that could help it diversify premiums while offering bundled services to better compete on price. Shares trade for 21.8 times trailing earnings and pay a 2.4% dividend yield.

Allstate Corporation (NYSE: ALL) holds the largest share of the American car insurance market (10.5%) among publicly-traded stocks. Auto premiums accounted for 67% of the total collected in 2015 across the company’s four insurance brands. While Allstate doesn’t have a developed direct channel, it does use a captive agent model which keeps policies in-house and helps keep customers from switching.

Allstate has been one of the most aggressive at raising premiums over the last couple of years which should drive better profitability. Shares trade for 20.0 times trailing earnings and pay a 1.8% dividend yield.

Eventually, driverless cars could be death of car insurance market as premiums adjust lower to account for less driving risk. The market for auto insurance will likely not die entirely but could shrink considerably as smaller, less profitable companies exit. This slow-death isn’t likely to start for at least a decade but investors should watch for signs of lower premiums and shrinking profitability.

Risks To Consider: The insurance market is very competitive on price as some mutual company competitors are not driven by the same profit motive. This makes competition difficult for publicly-traded companies and could limit profits.

Action To Take: Position in auto insurance providers ahead of a potential slowdown in claims on the surge in driverless cars and driver-assist features.

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