To most people, self-driving cars sound like a dream. Hands-free driving offers us extra free time, relaxing commutes, and a sharp reduction in vehicle accidents. While no one would disagree that these are enticing promises, the insurance industry isn’t excited about self-driving cars; they’re worried.
Insurance companies are scrambling to prepare for a world where humans don’t cause car accidents. Most experts think self-driving cars will be dominating the roads by 2030. That leaves insurance companies with a small window of time to change the way we all think about car insurance. Here are the areas where we’ll probably see the most change.
If a car accident occurs, but a person isn’t driving the vehicle, who’s at fault? That’s the question insurance companies are asking, and the prevailing answer is worrying. It seems likely that people will blame manufacturers, who logically should be held accountable for their product malfunctioning. However, this creates a serious problem.
If manufacturers are being held liable for every single vehicle they produce, that severely increases their chances of being sued. Lawsuits cost money. So, under these conditions, manufacturers might shy away from making self-driving cars to avoid going out of business.
To fix this, the RAND Corporation has suggested a no-fault system. This system would allow accident victims to be compensated without manufacturers seeing consequences that might discourage them from continuing to produce the offending product.
In the United States, insurance is state-regulated. That means different jurisdictions throughout the country have their own set of rules and regulations governing car insurance and self-driving cars. This once again hits car manufacturers with a new responsibility.
Should manufacturers be expected to pay the price of keeping up with the laws of 51 jurisdictions? Probably not. That’s why they’re trying to get the federal government more involved in car insurance. If car insurance becomes federally regulated, everyone involved will only have to answer to one set of rules.
Underwriting is the process that determines the terms by which an individual receives insurance (or whether they receive it at all). Self-driving cars will reshape or remove many traditional underwriting criteria.
Underwriters usually focus on drivers. They ask questions about a driver’s number of accidents, how many miles the driver expects to travel, and where the driver will keep the car. While those questions will still be relevant, the much more important questions surround the model of the car.
The safety of a self-driving car rests primarily with the technology within the car. Rather than assessing drivers, underwriters will have to assess the technology.
Self-driving cars contain complex technology that trumps the technology in most modern cars. This will likely increase the cost to repair damaged parts. Since insurance companies will often be held responsible for this cost, it’s an important (and possibly frustrating) factor for them to consider.
Consideration for Hacking
Many self-driving cars will be connected to some kind of network that allows for automatic updates and communication between vehicles. However, this opens up the possibility for hacks that compromise the safety of vehicles. Experts have already proven it possible to hack connected vehicles. This becomes a serious problem when all vehicles are connected.
Self-driving cars will only be safe if their network is secure. Insurance companies will have to determine how they want to handle damages caused by hacking.
Frequency of Claims
Human error is responsible for over 90% of vehicle accidents. Since self-driving cars remove humans from the picture, they will likely cause the frequency and severity of accidents to plummet. Fewer accidents mean fewer insurance claims.
We’ve already seen evidence of this in vehicles with crash prevention technology, which have a 7% to 15% lower claims frequency. Self-driving cars will almost certainly continue this trend. While this means insurance companies will have to pay out less often, it also means people will be less eager to buy car insurance.
An insurance premium is the recurring cost of an insurance policy. A decrease in claims frequency will force insurance companies to lower premiums. The cost of insurance has to match the customer’s expectation that they will need it. Since most people already don’t consider themselves likely to get into an accident, self-driving cars may turn car accidents into a myth. That is a bad scenario for insurance companies.
Insurance Company Tactics
Self-driving cars threaten to drive insurance companies out of business. Most insurance companies rely heavily on car insurance to stay afloat. As premiums on car insurance drop, insurance companies may struggle to make the profits they need to cover costs. If they don’t change their tactics, companies could lose billions of dollars.
One possible avenue of change would be offsetting costs onto non-car insurance policies. Since car insurance policies won’t be worth as much, insurance companies could raise the costs of commercial and product insurance coverage. The money has to come from somewhere, and that seems to be the most obvious source.
Another possibility is that the cost will transfer to people who use cars that aren’t self-driving. This would probably manifest as a severe increase in premiums for non-autonomous vehicles. While pushing everyone toward safer, self-driving cars is a nice sentiment, it would also be a nasty kick at people who can’t afford newer vehicles.
The bottom line is this: Self-driving cars will revolutionize the way we view driving. We’re redefining the car, and that’s not an easy reality to accept. However, while consumers can afford to simply ignore self-driving cars, for now, insurance companies have to deal with the uncertainty immediately.
Insurance companies don’t know what will happen, but they can’t afford to wait and see. They have to insure themselves against the potentially disastrous future of car insurance.