Like it or not, self-driving cars are coming. A rapid increase in the use of “autonomous automobiles,” as industry savants prefer to call them, is seen by many as a foregone conclusion. Following the early lead of Google, which has been developing the concept for over six years, virtually every carmaker in the U.S. market is working on some version of this new technology. Some, like Tesla and Cadillac, are already introducing aspects of these systems into their cars. The ultimate mass-market endorsement, though, was surely the recent Time Magazine cover story that devoted a whopping nine pages to the subject, mostly extolling the upsides of this “next big thing” and the vastly transformative affect it will have on our lives.
Within the US insurance industry, however, everything about the coming of the self-driving car is not so rosy. While much about the future of these cars is open to vigorous debate — for the simple reason that their full impact on the daily lives of American drivers is unknowable at this point — many in the insurance industry see these new cars as a potential source of disruption. And not in the happy, trendy way tech entrepreneurs like to throw that term around. The capacity for autonomous driving to reduce traffic accidents and especially fatalities, and all of the personal, legal and emotional costs that come with them, will likely undermine much of what is currently considered accepted fact in the automobile insurance business, and not just a little.
The most dire outlook so far was laid out last year in a report by the influential accounting firm KPMG, which predicted that a steep decline in automobile accidents over the next decade would be followed by a corresponding drop in accident claims and insurance premiums. Within 25 years, the report predicts, these declines could reduce the volume of the entire insurance industry to “40 percent of its current size.” According to the Insurance Information Institute, research shows that even in its earliest stages, the bits of driverless technology and related safety features already introduced into American cars have begun to reduce the number of fatalities between 2008 and 2011 by as much as a third. This trend will pick up more speed as more pieces of these systems are added will have an ever greater influence on the economics of the industry.
Other predictions about the timing and extent of these changes vary greatly. The most optimistic estimates for the complete adaptation of the autonomous automobile pinpoint the year 2030 as the date by which all American cars will have this technology. Other sources see too many potential roadblocks still lying ahead for there to be complete market penetration by anything close to that date. Most estimates see a gradual introduction of features over the next two to three decades with a proportional decline in the role of the driver as the technology is refined and the public, as well as federal and local governments become more comfortable with it. By some accounts, the complete integration of this technology could take another 30 to 40 years, if not longer.
In addition to the fundamental economic impact of driverless cars on the insurance industry, there is also a thicket of legal and political issues about liability and culpability that has to be cleared over the next several years, a task made all the more difficult because many of those issues need to be worked out on a state-by-state basis. If the past is any indication, the big question about who is responsible in a collision involving an autonomous car: the owner, the car manufacturer or the developer of the technology — and their respective underwriters will be pounded out one small increment at a time. So hang on for a very bumpy ride, which is the one aspect of this automotive innovation that is not likely to be fixed by technology.
Jonathan Belek
Risk Management Consultant
jbelek@srfm.com
