Could Driverless Cars be Fatal for Auto Insurance?

By Ed Silverstein
TMCnet Contributor

As new technology allows for driverless (autonomous) cars – one possible result will be the end of auto insurance as we now know it.

In the future, there may be little reason for certain kinds of car insurance – given that the risk for crashes will become almost zero, according to Bankrate.com

In the shorter term, it may lead to lower insurance costs for cars as a percent of total insurance costs. The total auto industry premium is projected to fall from 25 percent of total insurance industry premiums to 13 percent by 2022 – just 10 years away, according to a report from Celent, a consulting firm.

New safety technology will include: automated traffic law enforcement; telematics (systems which can monitor driving and alert drivers to possible risks); and robot-operated cars, according to the report, “A Scenario: The End of Auto Insurance: What Happens When There Are (Almost) No Accidents.”

Robot-operated cars are slated to become available to consumers between 2018 and 2022. Then, between 2023 and 2027 driverless technology is likely to be found as a “preferred feature of high-end cars,” according to the Celent report. There could be tax incentives from the government to encourage greater adoption of the technology, the report adds.

Lower auto insurance policies and their possible elimination altogether will mean that insurance companies will expand business in other lines, the sector will see more mergers and acquisitions, and there will likely be lower revenue from auto insurance for property/casualty insurers. Other sectors – such as car dealerships, repair shops and auto manufacturers – could also be impacted from the changes, according to Driverless-Now.com.

“In the near term, an auto insurer should be asking itself three questions,” Donald Light, senior analyst with Celent’s Insurance group, said in a firm press release. “First, how is it monitoring technology-driven changes in insured losses, (i.e., the progress of the scenario)? Second, do scenario technologies provide new kinds of data and analytics-driven changes in pricing, underwriting, etc.? And third, what should it do differently this year and next?”

“In the longer term, insurers with a significant amount of auto business have to grapple with some very challenging enterprise strategy issues,” he adds.

New technology leading to safer driving is nothing new. Air bags, anti-lock braking, seat belts, and tougher safety laws each improved driving safety, Light said in a statement to Bankrate (News - Alert).

According to national statistics, in 1980 there were 53,200 fatalities from motor vehicle accidents. In 2009, there were 35,900. During the same close to three decades, the number of motor vehicle accidents fell from 17.9 million in a year to 10.8 million in a year.

Now, Google (News - Alert) is developing a prototype of a self-driving car. Nevada will allow robot cars to be tested on public roads – and California, Arizona, Hawaii, Florida and Oklahoma may soon follow suit, according to a report from TMCnet.

But the insurance industry doesn't see the end of auto insurance. "Bringing the accident rate down to zero, or even close to it, is years away," Michael Barry, a spokesman for the Insurance Information Institute, told Bankrate. "Remember, you don't have to have a collision to file a claim … A tree could fall on a parked car, or floodwater could damage a vehicle; those types of property claims can be very expensive, and there's no indication that cars are getting cheaper to fix." In addition, tort lawyer, Thomas Simeone says lawsuits are still possible with robot-operated cars.

"Accidents may be rarer, but without drivers the liability issues get a lot more complicated," Simeone told Bankrate. "Even a simple fender bender would look a lot more like a complex product liability case because everyone would be pointing the finger at the manufacturer, who might in turn be trying to blame multiple vendors who made the software or hardware."

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