As the advent of autonomous vehicles draws closer, a drastic reduction in human error-related car crashes could significantly lower the cost of auto insurance coverage. How should insurers prepare?
The driverless vehicle — despite the technology still being in the early stages of development — promises a host of benefits to the auto industry and the population at large. From a reduced fatality rate and more manageable traffic conditions to greater mobility for the visually and physically impaired, each passing day seems to reveal a new upside to the widespread implementation of the self-driving car.
Raising the ceiling even higher, experts now believe autonomous driving has the potential to drastically cut the cost of car insurance. In a September 12 report, British broker Aon Plc predicted that if driverless vehicles are fully adopted by 2050, car owners in the U.S. could expect to pay at least 40% less for auto insurance premiums.
An Accelerated Timeline
Just days after Aon released its report, the autonomous car industry experienced a monumental development. On September 14, ride-share company Uber unveiled its initial fleet of self-driving taxis on the streets of Pittsburgh, giving a limited number of passengers the chance to be driven across town by a robot.
This was the first time driverless vehicles have been opened up to trial by public, and despite a few hiccups, the trial proved to most people that this once unfathomable technology is on track to becoming a reality — and most likely even sooner than expected.
What’s more, these new developments have impelled the federal government to acknowledge the growing prominence of autonomous vehicles. On September 19, the Department of Transportation (DOT) released its first official regulations on the manufacturing and testing of driverless vehicles.
In its 15-point safety report, the DOT lays out guidelines on how driverless cars should react if their technology fails; what measures should be put in place for passenger privacy; how occupants will be protected in crashes; and how automakers should approach the important issue of digital security.
Adaptations to Auto Insurance
With autonomous technology advancing at a breakneck pace, auto insurers can expect dramatic changes to their industry’s landscape within the decade. In its forecast of potential growth and possible roadblocks for the global insurance market, Aon reports that when driverless vehicles begin to roll en masse off the production line in 2018, the frequency of claims will plummet by roughly 80%.
However, while automation should make driving safer and slash premiums worldwide, unanticipated threats might emerge. These risks present opportunities for insurers to assess the relevance of their offerings and adapt them accordingly. According to Stefan Schulz, Global Head of Motor and Property Consulting at broker Munich Re, “The new technology will improve a lot of things, but it will also bring new risks such as hacker attacks on connected cars and rear-end collision of trucks driving in automated convoys.”
While these risks may seem daunting, insurers’ agility in the face of past auto industry developments bodes well for their ability to adjust to the advent of self-driving vehicles. In recent years, for example, more and more providers have begun to offer usage-based insurance (UBI) programs in their coverage lineup.
This new method of pricing emerged to accommodate a younger generation of drivers, who believe their insurance plans should match their personal driving behavior. Instead of the traditional measures for pricing (gender, age, and credit score), UBI plans use telematics to monitor and analyze driving habits. Five million drivers in the U.S. have already opted for a UBI policy, and IHS Automotive expects that number to grow to 142 million by 2023.
The UBI policy presents convincing evidence of insurers’ willingness to meet the changing demands of consumers, and of the industry’s ability to remain vital well into the future. As automakers attempt to achieve feats once reserved to science fiction, insurers will continue to ensure the safety of drivers across the country.