With the innovation of self-driving vehicles, people are wondering the impact it has on auto insurance
industry. Will it increase or lower the insurance rate? What coverages will people need to buy? Will auto insurance industry be forced to slow down?
First of all, we need to understand the current insurance policy cover for accidents most likely to be caused by human. If we use a fully self-driving car, most accidents for which the car is at fault likely to be blamed on the software or the manufacturer, not human anymore. Therefore, the manufacturer should purchase insurance on their end before selling the car. In other words, the car will be sold with insurance. It’s like you buy a toy and get a warranty for that in the package.
To sell the cars, at the very least, the manufacturer will provide insurance for periods when the SDV is operating autonomously. Assuming the responsibility up front is also a cost saving strategy. The revenue from the customers will provide funds to the manufacturer to not only pay claims but also to cover general litigation and regulatory expense involving the self-driving vehicles.
The self-driving cars at the current stage are still drivable by humans, and will be operated at least some of the time by them. So we still need insurance for this reason. However, drivers may get a lower premium insurance because of the reduced driving and better “driving record”.
As we know, driving record plays a big part when getting a good insurance rate. Self-driving vehicles are automated never drunk, tired, or suffer from road rage. We know that most of the accident are caused because of natural disasters fog, wind, rain etc but machines are better to handle such conditions to drive safer than humans.
So it’s basically good news for customers. What about insurance companies? They may not be as happy as we are. The goal of self-driving car is to decrease accident rates. Manufacturers test all the accident-prevention and crash-survival technologies to reduce the toll of accidents. Therefore, the cost to insure these cars will be significantly lower, and large car companies will self-insure this. Insurance companies won’t have much leverage to make profits from the insurance when dealing with these manufacturers.
Now let’s look at the impact on insurance companies from the cost and revenue side.
- Reduced claims payout. With completely automated cars, the number of accidents will drop drastically. Less accidents, less claims.
- Less instance of litigation. The tech logs from cars will give us complete and unbiased info about the conditions leading to any collision.
- Digital bring costs down. Thing like managing claims, business operations, sales & marketing are going digital.
- The responsibility for collisions will shift from drivers to the car manufacturers – sort of like product liability. So the personal auto policy will be more like commercial product. Hence, margins will be lower, bringing down revenues.
- Level of differentiation between insurance products will reduce and it’ll become more commoditized, again reducing revenues.
- Lower premium means less money to invest for insurance companies. Since their investment return decreases, the margins will also reduce.