There’s been a lot of talk about driverless cars. But is this technology real or science-fiction? The reality is some automakers are already on board with autonomous vehicles. But if driverless cars do catch on…how will that affect the auto insurance industry as a whole?
Believe it or not, self-driving cars are becoming more of a reality with each passing day. Presently, auto manufacturers Tesla, Volvo, and General Motors are leading the pack in driverless car technology. But other car makers are carefully watching from the sidelines to see if autonomous vehicles make it to the finish line…or crash and burn.
More importantly, how will this new technology affect the auto insurance industry as a whole? After all, insuring cars that can drive by themselves would’ve seemed like an oddity just a few years ago. But if these driverless cars take off, someone will inevitably be required to carry liability insurance on the vehicle (in fact, most U.S. states require it.)
How do these driverless cars work?
Driverless vehicle science encompasses a wide variety of technologies, including radar, laser, GPS (Global Positioning System), computer vision, and odometry (motor sensor data analysis). Advanced control systems analyze the collected sensory data and calculates the safest possible vehicular maneuver in street traffic or on the highway.
Tesla’s and Volvo’s “Autopilot” technologies lead the pack at the present time. According to a 2017 Business Insider article, the National Highway Traffic Administration (NHTA) reports that crash rates for Tesla vehicles has dropped 40 percent since their “Autopilot” system was first installed in 2015.
How much will the addition of this new technology add to the sticker price of the vehicle?
Presently, this “Autopilot” technology is projected to add $7,000 to $10,000 to the cost of the sticker price of the vehicle by 2025, according to HIS Markit. According to Forbes, a Tesla Model 3 with the “Autopilot” option, will add $5,000 to the overall price of the vehicle, for a total price of $49,000.
A recent article in the Harvard Business Review (HBR) reported that as many as 23 million self-driving cars could be on the roads by 2035.
How will this new technology affect auto insurance premiums?
The same HBR study projects that the auto insurance industry could see a $25 billion loss of premiums by 2035 as a result of driverless car technology. Even in a $200 billion auto insurance market, a $25 billion hit is significant.
Why the revenue dip? The reasoning goes something like this: 90 percent of motor vehicle crashes are caused (in part) by human error, according to a study by the Center for Internet and Society. The theory goes that if driverless car technology significantly reduces the “human” factor, the potential liability to that driver would also be greatly reduced. And if the human liability is decreased, then the lower level of risk could be reflected in reduced premiums for policyholders.
Could driverless cars eventually put the auto insurance industry out of business?
Doubtful. Many insurance experts speculate that since autonomous car manufacturers will be assuming more risk than the humans in the vehicle going forward, the insurance liability should fall on the automaker, not the driver.
“Under the current structure that we have today, it is the manufacturers who will bear the liability in that situation, because the driver isn’t going to be doing anything,” says Geoffrey Drake, a partner at King & Spalding’s Tort Litigation & Environmental Group, in a recent Business Insider article.
The additional insurance liability coverage would be added to price of the vehicle. According to a report on NPR, Michigan recently passed a law that mandates that driverless car manufacturers must assume liability for all of its vehicles.
But there is a bright side for car manufacturers. Shifting the liability insurance burden to the automakers could be very beneficial to them, from a business perspective, in the form of new, untapped revenue streams. First, if driverless car companies get into the auto insurance business, it could open up a whole new profit center for the company. Second, the data collected from the “Autopilot” system, could be used internally and externally. The analytics on that data could be used in many ways, including sharpening customer profiling. Sharper and more data-rich consumer profiles could make future sales and marketing initiatives more precise in execution.
“I think the (auto) companies with really strong brand positioning, if they get out in front of this, and used the big data and analytics and real time situational awareness, they’ll do just fine to create new value,” says Lawrence Burns, a retired GM executive and professor, in a 2016 article in Forbes.
If I get a driverless car, I don’t really have to pay attention to my driving, right?
If you think being in the driver’s seat of a driverless car will now allow you to simultaneously play a video game, tweet your peeps, put on make-up, and Instagram your breakfast burrito…snap out of it! Driving a car is serious business. It doesn’t matter who (or what) is actually controlling the vehicle. That responsibility shouldn’t be taken lightly.
Are driverless cars accident-proof?
No. Driverless cars are NOT perfect. At least not so far. According to the Business Insider, in May 2016, a Tesla Model S with Autopilot, was involved in a major accident, killing its owner. The Tesla failed to brake when a truck made a left turn in front of it. The car’s sensors failed to react to the truck’s turn…and the driver paid the ultimate price. “The self-driving cars will need to have data recorders which will give all the information needed to determine the circumstances around a crash. This will then be up to the courts to elevate this (issue) and decide on the liabilities,” says Anders Eugensson, Volvo’s director of government affairs.
Does that mean that auto insurance for drivers will eventually become obsolete?
Probably not. Here’s why. There was an ironic epilogue to the Tesla Model S accident referenced above. After a six-month investigation, the National Highway Traffic Safety Administration (NHTSA) determined that Tesla’s Autopilot system was not at fault, because the driver himself had a full 7 seconds to brake the car, but failed to do so.
In this case, the deceased driver could’ve been held libel for this particular accident, not the auto manufacturer, so there are grey areas, for sure. Especially if liability lawyers are involved. So it’s probably still prudent for drivers to carry some form of liability insurance protection on themselves (and potential passengers) as a precaution.
The good news is, if the number of auto accidents does drop significantly, insurance companies could potentially start lowering premiums to consumers. And if insurers are allowed access to the data gathered by these Autopilot-type systems, this data could be beneficial in helping insurance companies develop more precise underwriting models.
What is the long-term future for driverless cars?
Who knows? A lot will depend on how many auto accidents can be attributed to driverless cars, and how much of a financial liability (i.e. lawsuits, product recalls, etc.) these cars pose for their manufacturers. If driverless cars can put a significant dent in lowering the annual motor vehicle traffic death rate in the U.S. (over 35,000 in 2015, according to the NHTSA), then these automatic autos are more than likely to be here to stay.
