Are Autonomous Cars Diminishing the Insurance Industry?

Are Autonomous Cars Diminishing the Insurance Industry?

Cars are getting safer and safer with each passing day, that’s a fact. Subsequently, we’re seeing fewer accidents on the roads each year, therefore reducing the number of fatalities. That’s great, but what does it mean for the insurance industry? Will it simply become irrelevant and obsolete once we have roads teeming with self-driving cars?

Well, not exactly. Certain companies, such as Volvo, aim to completely eliminate the number of fatalities in their vehicles by 2020, but is that goal realistic? Not really, and we’ll tell you why over the course of this article.

Today, most standard vehicles offer advanced safety systems and crash avoidance technology such as blind-spot monitoring, forward-collision warning, lane-departure warning and collision mitigation. We’re not just talking about high-end, flagship models either. No, you can find these options on most mid-priced vehicles offered by Ford, Honda and the likes. These are the same components we’ll see in the fully self-driving car of tomorrow. A couple of manufacturers have promised fully autonomous vehicles by the end of the decade, but it remains to be seen how that pans out.

So what does this mean for you and me, the end users? How will it affect us, our insurance policies and indeed, the insurance companies themselves? With insurance premiums at an all-time high according to most insurers, it seems highly unlikely that prices will go up. Self-driving cars will greatly reduce the number of accidents, thus reducing the cost of insurance premiums.

A Car Insurance Grey Zone

At the moment, it’s a grey zone. As more and more manufacturers start offering advanced safety technologies as standard, insurers will be able to gather more data and determine to which extent these various systems reduce the frequency and total cost of accidents. It’ll also enable them to determine whether accidents lead to a higher percentage of product liability claims, since most often claimants blame the manufacturer itself for the cause of the accident, rather than their own driving. A change in liability laws will subsequently ensue, as a natural reaction to stop the complete halt of advances in autonomous vehicle technologies.

Whether people like to admit it or not, most accidents are human error. By eliminating the driver as a factor, you’re taking out the biggest variable preventing total road safety, so it’s only logical that the accident rate will tumble down. Data collected from the IIHS already shows that vehicles equipped with forward-collision warning systems, especially those fitted with automatic braking, result in a marked reduction in collision claims and property damage claims. Although cars are not fully-autonomous just yet, we’re definitely heading in the right direction.

Major car manufacturers such as Ford, Nissan, and Audi are already testing intelligent self-driving cars. They’re not exactly what you’d call completely bulletproof, as most of them can only travel a certain distance before requiring assistance from the driver, but the technology is getting better with each passing day. Experts claim that a complete transfer to self-driving cars alone will happen by the end of 2030.

The Effect on Insurance

Some insurance aspects will need modification and big changes to stay relevant, but the liability for coverage will still be there. You have to consider that although the aim of self-driving cars is to completely eradicate accidents, that will almost never happen.

First of all, there’s the issue of software reliability. Yes, we’re removing the driver for something more dependable, something which always operates the same way given the circumstances, but even the latest computers are prone to malfunction. So what happens if you have an autonomous car with no driver controls for an occupant to take over, and it just so happens that a piece of hardware or even software malfunctions? The answer is, again, an accident. Granted, we’re likely to see less of them, but they’re inevitable.

Then there’s the matter of cyber-security. An autonomous car is a great concept, but it’s a target for cyber-attacks from hackers. Essentially a moving computer on wheels, certain vehicles will be easily targeted by future criminals who will no doubt find some way to gain an advantage from all of that.

The fact that we’re taking someone’s freedom to operate a vehicle away for their own safety, only for them to be killed by another person’s wrongdoing is slightly ironic. We’re essentially saying you have to entrust your life in this device which can be easily manipulated over the internet from thousands of miles away, and not yourself. Some people are likely going to be disconcerted when autonomous cars become a reality, with many completely resisting the change. People who drive for recreation and view cars as something more than just means of transportation will be affected by this the most.

The bottom line is that the liability of insurance companies will be reduced, as manufacturers, suppliers and even municipalities in certain cases will be called upon to take responsibility for the accident. A concept of cost benefit analysis to mitigate the overall cost to manufacturers might be incorporated. The coverage for natural disasters (wind, flood, etc.) and theft will almost certainly remain largely unchanged, but it may go down if anything. With healthcare and disability insurance costs related to vehicle accidents going down, the insurance premiums for drivers are going to go down as well.

Time is far too short to discuss the matter of ethics regarding autonomous cars, the future of insurance companies (which bring $220 billion every year), or even the future of truckers. This most important profession to the U.S. insurance industry is sure to be disrupted, and only time will tell how things unfold.

By: Brandon Davis

Zeck Ford

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Enhanced Insurance is not written by attorneys. If you’re looking for legal advice, you need to contact a lawyer. Further, insurance practices and forms change constantly and are varied from state to state. For definitive answers in your area, contact a local agent.

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Jim operates an insurance agent network called Insurance Partners, aggregating agents in the Midwest for over 25 years. He was National Agent of the Year for Metropolitan in 1993 and Midwest Agent of the Year for Travelers in 2011. He served as a founding board member of the Surplus Lines Association of Minnesota.

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