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Will Autonomous Vehicles be the Death of Car Insurance?

Self-driving cars are coming, and they’ll be on roadways before you know it. We know they’ll come with loads of benefits. Imagine being able to sleep on road trips while your car takes you to your destination. Accidents will eventually become far and few between.

You’ll still need to maintain your vehicle, so you’ll still get plenty of use out of your Uberfix MD. You’ll still need gas, too, unless you opt for an electric car.

But what about insurance? Will self-driving cars actually be the death of this multi-billion-dollar industry?

A New Risk Comes at a Higher Price

Did you know that getting insurance on a Tesla, famous for its autopilot feature, will cost you an arm and a leg? We’ve heard stories of people getting quotes of $10,000 per year for insurance coverage.

But why is the cost so high when Tesla vehicles are designed to improve safety?

The truth is that there’s just not enough data to really measure the risks involved with driving a Tesla. Underwriters and actuaries will charge when pricing insurance because they just don’t have enough data to go off of.

Some new insurance companies are popping up that specialize in coverage for cars with self-driving features. They’ve partnered with carmakers to gain access to data from policyholder vehicles (if the customer gives permission). The data will allow insurers to cut premiums for drivers who engage in autonomous driving.

With Low Risk of Accidents, Will Insurance Become Useless?

One of the most promising benefits of self-driving cars is fewer accidents. Autonomous vehicles employ an array of cameras, radar and lidar to detect trouble on the roadway.

There are many benefits to having a complex, advanced computer system driving your vehicle: it never gets drunk, distracted or tired. Sure, there are other complications to think about, like hackers, glitches and malfunctions, but overall, self-driving cars are poised to significantly reduce or eliminate roadway accidents.

Last year, a report from ZDNet estimated that autonomous vehicles could save up to 350,000 lives in the U.S. alone and millions worldwide.

But if cars – and not people – are driving vehicles, why do we need insurance?

Premiums, which provide insurance companies with revenue, are based on a driver’s risk of being in an accident and actual crash rates. If more than 90% of accidents are caused by human error and we take drivers out of the equation, will insurance companies become obsolete?

Insurance companies are now scrambling to find a solution and prepare for the future. Right now, they’re mainly focused on understanding autonomous driving and what types of opportunities are out there for them.

According to research cited by Bloomberg, premiums may drop by 12.5% of the total market by 2035. The research expects new insurance products centered on self-driving cars will offset some of these losses. But eventually, declining revenue from premiums will eventually outpace the gains.

A Future Problem

The insurance industry will undoubtedly be affected by self-driving cars, but it will have some time to adjust.

It’s estimated that there will only be 23 million autonomous cars on U.S. roads by 2035. That’s less than 10% of today’s total vehicles.

Right now, the technology needed to repair autonomous vehicles is cost prohibitive. For this reason, premiums will likely skyrocket at first as autonomous cars make their way onto roads.

There’s no question that the insurance industry will change dramatically as automation reaches levels 4 and 5. At level 5, cars will be fully autonomous without any human involvement.

At that point, insurance will become far less of a consumer-facing industry because the driver will no longer be the risk. Liability will shift from the driver to the vehicle manufacturer and licensers of the software that run the vehicles.

Ultimately, this may mean that insurance companies will sell more policies to companies and fewer policies to drivers. It won’t necessarily be drivers on the hook for accidents, but rather, communication system suppliers and car manufacturers.

Some insurance companies are already looking at solutions to the problem and preparing for the future. Allstate, for example, is hiring more big data and analytics experts to prepare for the influx of data that will come with autonomous vehicles.

Determining Fault

Of course, determining fault will still be a complicated matter. If a sensor goes awry, who’s to blame: the car manufacturer, or the supplier? What if the driver failed to perform a software update, which led to a malfunction that caused an accident? What if a car gets hacked, or loses its Internet connection?
Insurance companies will now be tasked with determining who’s at fault in these types of scenarios.

In the future, automakers will likely be the ones to assume liability. A precedent has already been set for this type of outcome. Mercedes-Benz, Google and Volvo have all already accepted liability in cases where a self-driving system has caused an accident.

Tesla now extends an insurance program to buyers of their vehicles.

Just keep in mind that this technology is still very much in its infancy, so we’ll probably go through a lot of litigation before precedents are set and things start to settle down. Some experts predict that vehicles will need to have extensive tracking sensors to determine whether AI or human drivers are to blame for an accident.

The Insurance Industry Will Face Challenges

It’s estimated that by the 2040s, drivers will start to realize that they don’t need to carry personal accident insurance. We may wind up at a point where we all just carry the minimum legal coverage.

If the cost of insurance becomes less of a concern, maybe more drivers will spend more money on maintaining their vehicles properly. We’re still a few decades away from this problem, but eventually I surmise that insurance will become less and less relevant for drivers. If anything, we’ll be carrying around passenger insurance that will cover us no matter what vehicle we’re riding in. Until then, we suggest that you practice safe driving habits and make sure that you take care of your car.

June 18, 2019


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