Google's driverless car looks amusing, with its sensoryequipment strapped to the roof, but the property and casualtyinsurance industry shouldn't smile. Google's car is getting most ofthe press, but the autonomous car industry is growing far beyondGoogle's efforts and should greatly reduce the risks involved indriving. The current $200 billion in annual premium for commercialand private auto insurance in the United States could decrease overthe next five years by as much as $75 billion.

Recent Developments

The Nevada DMV put the Google car through a test to assess thecar's performance in May of this year. The modified Toyota Prius passed the testalmost immediately. It came out later that Google got to choose acourse, set specifications about the road and weather, and Google'spersonnel had to take over the controls twice during the test.Given all that, proponents believe that the world will still changebecause the driverless car is compelling.

In January of this year, Morgan Stanley issued an estimate that the United States economycould save $1.3 trillion by moving to autonomous (driverless)cars. Auto companies are installing automatic driving features.Driving aids are available to keep us in our lanes. Cars arealready warning us of impending accidents, applying the brakes whenwe don't react quickly enough to avoid possible impacts, parkingthemselves, and have had automatic braking systems for decades.BMWalready has driverless systems contained within its normalaerodynamic profile so that it doesn't look like something Disneydesigned. Some believe the cost per unit for this technology willbe about $3,000 in the near future.

Overall Cost Savings

Driver error is considered to be the main reason behind 90% of all crashes. The annual cost ofcrashes in the United States is said to be around $300 billion. Evenconsidering the 16% uninsured autos, given the annual cost of autoinsurance $300 billion appears overstated by more than double.Nonetheless, consider the main causes of accidents: alcohol,distracted driving, failure to stay in lanes, failure to yieldright-of-way, erratic vehicle operation, over-correcting, drugs,and fatigue. It is obvious that an autonomous car might represent areasonable alternative.

Even when factors such as mechanical failure, roadway, and theenvironment are causal it's extremely probable that speeding,distraction, and outright inattention could make an accident muchmore severe and more frequent. Estimates for insurance savings areas high as 50%.

Savings for the Trucking Industry

Just this last week, Peterbiltdemonstrated its autonomous driving technologies. Bill Kahn ofPeterbilt said, “The autonomous truck of the future is an extensionof existing, individual systems already available for today'scommercial vehicles.” Peterbilt is a Texas manufacturer of mediumand heavy-duty trucks.

In July, Daimlerhad a similar demonstration of their autonomous truck on Germanhighways. They also showed a video of a man sitting passively in atruck while the vehicle easily managed to steer itself.

That video was fifty years old! Naysayers who attack thedriverless vehicles as “happening too quickly” need to think aboutthe amount of time that has already been put into thistransition.

The trucking industry is salivating over the $168billion Morgan Stanley has projected they can save annually.Part of this reduction in expense is due to projected savings oninsurance premiums.

The trucking industry seems to think a large amount of savingswill be realized simply by keeping trucks in service 24/7 insteadof allowing them to sit idle while waiting for drivers who arerestricted by hourregulations.

The Change to Autonomous Vehicles Will HappenQuickly

There are savings to be had, but can it happen in fiveyears?

Also last week, in addition to the announcement in the truckingindustry, GMstated it would have hands-free driving and vehicle-to-vehiclecommunication by 2016 in their Super Cruise Cadillac system. Thesystem is designed to allow the car to take over in congestedstop-and-go traffic.

Organizations such as Central North America Trade CorridorAssociation (CNATCA.com) are determined to move quickly. Theybelieve that our current east/west shipping lanes need supplements.They've proposed an autonomous corridor on U.S. Highway 83from Mexico extending to Alaska, which splits the nation north andsouth through the plains states.

Because of the impact of fracking in the Bakken oil field of western North Dakota, sucha corridor is desperately needed. Oil transportion is disruptingthe area's coal and grain shipments. Even a proposed new,electrified, double train track will not provide the freight volumeneeded.

“We believe the legislators in at least North and South Dakotawill be receptive in this upcoming session to a proposal fortesting semi-autonomous trucking along the corridor,” said MarloAnderson, spokesman for CNATCA. “Companies like Integrated Roadway arealready building roads with sensors, with ice and snow meltingequipment built in.”

“Semi-autonomous trucking” involves convoys that areelectronically tethered with a driver in the lead vehicle. Convoyswould be formed outside congested areas. Before joining the convoy,and after the trucks arrive at destination ports, they could beeither driven through congested areas to final destinations byremote control or by onboard drivers.

Insurance Underwriting Advantages

It is hard to imagine a person voluntarily relinquishing the pleasureinvolved in driving their private passenger car. I drove afifteen-speed gravel truck as a summer job during college andthought it was fun. Yet, my days as an underwriter often made mewish long-haul truck drivers were a little less “fun-loving” and alot more predictable. In retrospect, a driverless car seems like itmight be an underwriter's dream.

As an underwriter I once read a large loss report about a driverwe insured who had hit an overhead bridge with his refrigeratedtrailer while hauling fruit from Texas to Minnesota. I couldunderstand the driver miscalculating the height of the bridge.However, I was a lot less understanding a month later, when thatsame driver hit that same bridge on the other side with a newlyrefurbished trailer.

“The average tractor costs about $140,000,” Dale Bergstrom ofErickson/Larsen general agency offered. Bergstrom has beenunderwriting long-haul risks for five decades. “A trailer can costbetween $40,000 and $200,000. The average price for physical damageand liability insurance for the average unit currently runs about$12,000 to $15,000. I'm reserving judgment on the overall impact onpremium of autonomous freight hauling. There's too much to shakeout.”

Issues to Solve

It's speculated that one of the problems with autonomousvehicles will be cargo coverage for unmanned units that are parkedon the side of the road due to mechanical problems. That risk couldbe mitigated if the trucking industry has a fleet of pickupspatrolling the freight corridors to provide protection.

Most experts indicate much more efficient fuel usage, butanother problem suggested will be refueling. The corridors willprobably have ports along the route, much like the current weighstations, which are devoted to autonomous trucks.

Legal issues will be sorted. One issue might be theestablishment of communal standards. What will take precedent inthe computer's hierarchy when a collision with another vehicle isimminent? Will the computer opt to take action to preserve assets,or lives? And, if lives are considered a priority, at what dollaramount do assets prevail? These now clinical decisions will becomequite emotional under tragic circumstances.

Privacy is also a concern, but usage-basedauto insurance pricing is already breaking down consumerresistance to onboard data gathering.

Fait Accompli

We are already driving cars that have “driverless” features.Many experts believe that the more this trend broadens, fewer andless severe accidents will occur. Many obstacles have beenovercome. States have acted already to approve the testing ofdriverless cars and more seem ready.

Our industry needs to prepare for the premium loss we willsustain, over the next very few years. Before too many tears areshed, we should consider that the premiums for freightdelivery-drones will be huge and a new source of revenue.