Auto manufacturers and their suppliers aren’t the only ones trying to get in front of the potential business disruption posed by driverless cars. If autonomous cars catch on, as much as $160 billion per year in insurance premiums could vanish amid improved vehicle safety and reduced vehicle ownership. Insurers like Allstate and State Farm are not taking the issue lightly and are spending huge sums on research to help determine future demand and develop new products and services.
While mass-scale adoption of fully autonomous car technology is years away, driver-assist technologies like automatic braking, advance cruise control, and lane holding are already here. Such technologies could incrementally reduce accident rates well before we all take power naps while hailed autonomous cars drive us to work. Liberty Mutual already offers discounts for some tech-enabled features, including automatic emergency braking, and is working with MIT on further automotive safety research.
But how might a significant reduction in accidents affect car insurance pricing? And who will pay — the driver, the carmaker, or whoever developed the car’s software? If responsibility shifts from individual car owners to auto manufacturers and their suppliers, insurance companies that offer property and liability policies to business customers may have the most to gain.
Google, Mercedes, and Volvo have said they would accept liability for accidents involving their driverless cars, which could mean drivers are left to pay only for policies covering fire and theft. A 2015 report by KPMG estimated that the personal-auto insurance industry could contract 40% within 25 years. Part of that erosion could come from direct competition from car manufacturers. As cars become more connected, driver data — such as speed during a crash — are collected by car companies. Why shouldn’t they use that data to create their own insurance products — especially if the burden of liability changes from car owners to manufacturers?
Or instead of competing with insurance companies, automakers could join forces with them. That’s just what Toyota has done by forming a joint venture with Aioi Nissay Dowa Insurance. The two companies are working to develop insurance products based on driver behavior data. But this model seems a bridge solution to the eventual proliferation of cars that don’t have drivers.
In a driverless future, insurers will have to devise a new way to calculate risk. Today, actuaries know how many total miles are driven and use demographic information, driving records, and, increasingly, data gathered from connected cars to determine pricing. But with the human factor removed, the focus shifts to other variables, including how vulnerable the car is to hacking, or geographic variations in the quality of satellite imagery coverage.
While the rise of autonomous driving features is sure to alter the car insurance competitive landscape and the types of products offered, there is plenty of time to figure it out. KPMG expects fully self-driving cars to be widely available by 2025, while a similar forecast by Deloitte Consulting pegs significant market availability around the late 2020s.
Not everyone is quite so optimistic. In speaking to The Wall Street Journal, Insurance Information Institute president Robert Hartwig said:
“…we are still operating in an era when car makers are recalling millions of vehicles for the simplest of technology failures: ignition switches, floor mats and air bags.”
James Bryant is an industry editor for Dun & Bradstreet. Based in Austin, Texas, he writes about issues affecting the global manufacturing sector. He’s been the company’s specialist on the auto industry for 15 years.