Automobile experts eye driverless cars as a means to reducing congestion and accidents. However, driverless cars are currently in a gray area as far as legality is concerned, and as a result, they pose difficult questions for the insurance industry. But what truly defines a “driverless car” and how will the industry as a whole react to cars whose drivers are actually only passengers?
Automation and Insurance
Currently, assisted driving features are available on mass-market automobile models. They can read road signs, and inform their drivers to stay within posted speed limits. Autonomous (Driverless) vehicles will be different. They offer driving without distractions and will drive with an eye to the current road and weather conditions. They can see 360 degrees around them, and are believed to have the capacity to potentially cut the number of accidents which result in death, injury, and property damage.
Autonomous (driverless) vehicles present a new area for insurers. Since they operate with sophisticated computer algorithms, what happens if a car is hacked? If a car’s software is determined to be at fault for an accident, rather than the driver, this means that insurance companies may well be introducing new products to automakers to protect against that possibility.
Since premiums are inherently tied to likelihood of damage and the costs to repair it, driverless technology could eventually lead to lower premiums and insurance company profits. Some insiders feel that the outlook for insurers is brighter, stating that the software and equipment needed for driverless cars is expensive and could lead to comprehensive policy increases.
For a different perspective, some insurers look to home insurance. Like homeowner’s insurance, automobile claims will be rare, but quite high in price. Auto insurance premiums may – and probably will – go down, but other operating costs and claims will as well. Insurance may be even more profitable for the insurers that survive.
Looking to the Future
Even a 25% drop in collisions in crowded urban areas will reduce the number of accidents related to congestion. This may lead to insurers feeling the effects of assisted driving long before they have to face true driverless cars.
Since there is no actuarial data for the new technology, insurers face important, strategic choices. Some may delay price reductions for greater profits in the short term. In our opinion, other insurers (who are more focused on the actual transition) will use claim drops to implement aggressive pricing to gain market share. These changes may be seen within the next several years.
As today’s insurers collide with driverless cars, they may possibly thrive depending on how well they manage this transition, as disruptive as it may be. There are possible pitfalls ahead for insurers, but there are monumental opportunities as well. How do you think the insurance industry should respond? Comment with your thoughts!