Dangerous driving behaviors such as speeding, texting or driving while intoxicated may soon cease to exist with computers at the wheel instead of humans.
Zero traffic-related accidents, guaranteed. At least in theory.
It's a big idea, to be sure. But as self-driving technology continues to evolve, this idea may someday become the reality. And in the absence of human driving errors, the automobile insurance paradigm as we know must adjust.
Though still a long way off, this vision of a self-driving future and the resulting insurance policy revolution is on its way.
Tomorrow's auto insurance, today
Imagine a day when consumers no longer need to purchase auto policies. That may sound like fantasy, but it is not too great a leap to foresee the duty to carry insurance for self-driving cars shift to vehicle manufacturers or ridesharing services that deploy self-driving fleets. Consider Google's recent partnership with the InsurTech startup Trov, which now insures Waymo passengers involved in driverless fender-benders.
Today's cars already feature varying degrees of automation. Some require the driver to fully control operations, while other vehicles handle limited steering, acceleration, emergency braking and even parallel parking. Tesla software kicks it up a notch by matching a car's speed to traffic conditions, keeping it within a lane, automatically changing lanes without requiring driver input, transitioning from one freeway to another, and self-parking.
What remains in development is a fully automated vehicle, or one that needs no human intervention whatsoever — or even a steering wheel.
Of course, fully automated self-driving cars will not replace human-driven transportation systems all at once. Instead, the transition will take years; maybe even decades.
But even now, the needle is moving, and insurers must respond.
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What's an auto insurer to do?
The exponential growth of semi-autonomous cars requires rapid change on the part of producers and insurers alike.
Celent, the research, advisory and consulting firm, suggests that by 2025, the number of cars with advanced driver assistance systems (ADAS) including adaptive cruise control, steering pattern monitoring, automatic braking, blind-spot detection and driver drowsiness detection, is expected to jump to 40%, up from a little more than 10% in 2015. By 2030, half of all operational vehicles are expected to have multiple ADAS functions.
Vehicles will become safer and traffic-related accidents will decline with the addition of each new ADAS feature. In fact, Swiss Re predicts that ADAS could reduce crashes up to 45% by 2020.
Fewer collisions means less risk. That, in turn, creates demand for lower auto insurance premiums.
Going forward, insurers may need to adapt their pricing standards. Yet they should do so with caution. Haphazardly cutting prices in an effort to maintain market share would be unwise, especially in the absence of data that details how new technological advancements actually impact collision risk.
Greater vehicle autonomy might not necessarily equate to lower or more predictable aggregate loss outcomes. (Photo: iStock)
Consumer pros and cons
For insureds, safer cars and the prospect of cheaper insurance coverage are certainly positives. For instance, automobiles equipped with vehicle-to-vehicle (V2V) communications technology can identify and evade imminent road hazards. It follows that the National Highway Traffic Safety Administration (NHTSA) estimates V2V technology could eliminate up to 80% of crashes at intersections.
But with the good comes the bad, and the bad may come in the form of increased claims severity. Consider that V2V technology is notoriously susceptible to radio interference, and any digital technology could fall victim to cyberattack.
So the risk of individual collisions may lessen with automated vehicles, but the likelihood of larger, more catastrophic accidents is very real.
Cars equipped with multiple ADAS also could be more costly to repair.
Stated another way, it may be that accidents, though fewer in number, will result in greater risk variability and potentially increased claim severity — something insurers must consider when rethinking pricing methodologies.
The growing role of telematics
As we inch toward a driverless future, human drivers will need to share the road with an array of semi-autonomous vehicles. This raises questions concerning liability. Determining fault in the event that two semi-automated vehicles collide will remain dependent on situational circumstances and facts.
This could change, however, based on telematic data collection and analysis. These days, even vehicles with entry-level automation capabilities can gather and transmit driver data. As such, real-time telematics can reveal conditions and liability after an accident.
Beyond determining crash causality, telematics also can provide a more scientific basis for underwriting and rate calculation. In fact, insurers are already leveraging the mountain of data accessible to them to offer innovative (and price sensitive) automobile coverage, including pay-per-mile insurance.
There's no turning back
The automobile industry has undoubtedly entered an autonomous technology renaissance. In response, insurers will continue to break away from what will soon be arcane methods of underwriting in favor of new methods informed by data analytics.
It follows that insurance coverage will shift away from individual consumers, or self-driving passengers, and toward Original Equipment Manufacturers (OEMs), fleet services and software developers. For forward-thinking producers and insurers, these players represent potential customers.
Going "all in" with telematics will allow insurers to maintain and even increase market share by developing tailor-made policies, and boost profits by underwriting an increasing variety of insurable risks. To that end, investments in telematic data collection and analysis, including measures to ensure data privacy and protection, should be top of mind for auto insurance carriers.
Jesse Krompier is an associate at Michelman & Robinson, LLP. He can be contacted by calling (310) 299-5500 or by sending email to jkrompier@mrllp.com.
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