Vehicle insurers are bracing for major changes as drivers begin transitioning to autonomous vehicles in a process that could be completed within the next decade, according to some experts.
“Insurers are studying this major market disruption very intently to determine exactly how it is going to impact our industry,” said Brenda Wells, the Robert F. Bird Distinguished Professor of Risk and Insurance at East Carolina University’s College of Business. “They have first made the realization that the auto insurance market will shrink with the rollout of autonomous vehicles.”
“This is an existential threat to insurers with a major exposure to auto insurance,” warned Alan Walker, executive vice president and digital insurance global lead at Capgemini Consulting. “If you look across both personal lines and commercial lines, vehicle insurance is some 30% of global insurance premiums.”
A large portion of the market for vehicle insurers is going to disappear within the next 10 to 15 years, Walker predicted.
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- Vehicle insurance experts have observed that self-driving cars will disrupt their industry because of changing consumer habits, uncertainty over liability, and promised safety improvements.
- Autonomous and connected vehicles are expected to yield a lot of big data, which will require a lot of analysis for predictive maintenance, aggregate traffic data, and other insights.
- Some automotive experts say that self-driving vehicles may hit the roads sooner than expected, particularly for commercial use. As a result, insurers and attorneys should start preparing now.
A mixed bag
As self-driving cars inch closer to everyday users, vehicle insurers are facing a classic “good news/bad news situation.” Although automotive insurance isn’t likely to disappear entirely, the insurance market will almost certainly become more specialized and far less lucrative.
Some insurers are already holding deep discussions with major auto manufacturers, figuring out how best to play in a new automotive world, Walker told Robotics Business Review.
“Astute CEOs of insurers with heavy exposure to auto risks are trying to figure out how to replace the major losses of revenue that they will be facing,” he said.
“Autonomous vehicles should reduce the exposure to — and probably sales for — automobile insurance,” observed Marc Lamber, head of the plaintiff personal injury practice at Phoenix-based law firm Fennemore Craig.
The reason for this is simple, he noted. “[With no driver in direct control] if a vehicle malfunctions and causes an injurious collision, then the manufacturer likely will be on the hook, and most manufacturers will have the financial wherewithal to resolve these claims,” Lamber said.
“It’s a warranty issue,” said Jay Weintraub, founder of InsureTech Connect, an insurance technology conference organizer. Vehicle manufacturers may therefore opt to do everything on their own balance sheet, he added.
“We are seeing that with Tesla now, which I believe was something they would do, but not something anyone predicted happening now,” Weintraub said.
Lamber said that vehicle insurance will continue mostly unchanged until cars and trucks become intelligent enough to not only to navigate roadways safely with absolutely no human input, but also to attend to their own maintenance. This would include checking things such as tire pressure and automatically downloading and installing software updates. Such a vehicle isn’t expected to arrive anytime soon, however.
“Even in autonomous vehicles, the operator still has a role,” he said. “If the operator is negligent, and this contributes to a collision, the operator will need automobile insurance.”
Insurance terms and costs are expected to fluctuate widely as more autonomous vehicles roll onto streets and highways.
“In the years ahead, the forensics of determining who or what is to blame for an accident will be pretty intense,” Wells said. “If the car is only partially autonomous, then there is still a component of driver error that can come into play, thus necessitating liability insurance.”
But an accident involving a fully autonomous vehicle — a “Level 5” on the National Highway Traffic Safety Administration scale — could result in a product-liability claim directed at the manufacturer.
“That’s where the forensics get interesting,” Well said. “Whose fault will it be? The auto manufacturer? The software manufacturer? A hacker attack? A signal from another car, or from perhaps a government-owned beacon of some sort?”
“Before becoming completely driverless/autonomous, vehicles will go through stages of being driver-controlled and semiautonomous,” noted Ben Bengtson, senior vice president and global leader for insurance industry markets at business consulting firm Cognizant. He said he expects vehicle insurers’ products will be more complex during the semi-autonomous phase than during the fully autonomous phase.
“Insurance carriers will need to transform in parallel with these phases,” Bengtson said.
Vehicle insurers wait for safety returns
Down the road, a critical mass of fully autonomous vehicles linked to one another could bring down accident rates and severity to the point where insurance rates drop substantially, said Peter Schlactus, managing director of Brightstone Insurance Services, a specialist broker serving the transportation and the logistics industries. “Until then, I predict only a modest impact,” he said.
Liability issues aside, many autonomous vehicle owners will continue to use insurance to cover unanticipated expenses, Wells said.
“You won’t be talking about insuring a $15,000 economy car anymore,” she notes. “These cars will be $40,000-plus in value and, if damaged by weather, vandalism, or other causes of loss, will have to be repaired.”
Wells said she wouldn’t be surprised to see some stability, or possibly even increases, in some types of collision and comprehensive insurance coverage.
“Whether insured through the manufacturer or through a standard insurance company, it is possible that the cost of insuring autonomous vehicles will be a one-time cost or expense at the time of purchase, rather than a monthly premium,” said Patice Gore, an attorney at Haight Brown & Bonesteel, a law firm with offices across California.
Similar to the current debate on healthcare, some autonomous vehicle owners might opt not to have any insurance, if they are allowed to do so.
“The real worry to insurers is not that people won’t need insurance, but that … their revenue becomes so much less,” Weintraub said.
Ownership models and big data
Wells explained that evolving ownership models will test vehicle insurers’ ability to offer realistic, competitive rates.
“People are going to share these cars and possibly rent them by the hour or by the day,” she said. “That will present unique liability problems if damage occurs that is the fault of the person who has possession of the car.”
What happens, for instance, if two autonomous vehicles collide — both of which are part of a ride-sharing service — and no one in either car actually owns his or her vehicle? There are “so many wonderfully complicated scenarios that simply point to everyone needing some coverage,” Weintraub observed.
New use models and other mobile robotics trends will require vehicle insurers to become more adept at collecting and securitizing big data.
“That’s what insurance is ultimately based on — turning events that are uncertain to you or me into predictable patterns,” Schlactus said. “Only then can they develop coverage terms and pricing and put their millions on the line with some assurance of delivering a return on investment to their shareholders.”
Brightstone Insurance’s Schlactus pointed out that vehicle insurers are already collecting as much operational and safety data as they can. Such data is still limited, especially in regard to real-world situations and risks, he said.
Bengtson, however, asserted that many insurers have yet to fully embrace big data analytics.
“Though insurance is a data-rich business, insurance carriers have not been at the forefront of using data well, creating an opportunity for those insurers who master big data now and carry a big data mind-set into the world of autonomous vehicles,” he said.
Sensing a growing demand for deeper big data insights, autonomous vehicle manufacturers and their tech partners are now working together to improve vehicle data collection and analytics technologies. Yet a deeper vehicle data pool, driving a greater number of actionable analytics, may actually hurt the conventional insurance industry over the long run.
“With the direct availability of data from their connected cars, many automotive manufacturers may be eyeing entering the insurance industry themselves,” said Shaun Kirby, director of automotive and connected car product management at Cisco Systems. “If they can develop actuarial core competencies through the acquisition of machine learning, deep learning, and other data science and industry expertise, they would be very well positioned to compete with traditional auto insurers in the age of connected vehicles.”
Kirby added that vehicle insurers might choose to respond to this potential threat by thinking about how they can differentiate and evolve their businesses to maintain leadership.
“Perhaps through services like onsite repairs or fueling, leveraging their strength in logistics for service and claims assessment today,” Kirby said.
Few experts doubt that autonomous vehicles will eventually dominate the world’s roadways. Yet opinions differ on exactly when the technology will become mainstream and how long the transition from conventional to autonomous vehicles will take in both the commercial and consumer sectors.
“While shortages of qualified [commercial] drivers and rising auto insurance rates are current factors encouraging motor carriers to look longingly at autonomous vehicles, I believe widespread use remains 15 to 20 years away,” Schlactus said.
“We will see drivers being replaced in commercial fleets far sooner than the equivalent percentage of drivers being replaced on the personal side,” Weintraub said.
He estimated that the tipping point in autonomous versus conventional car sales would happen by 2035. Much depends on how quickly the nation’s roadway infrastructure is updated to accommodate the needs of autonomous vehicles, he said.
“I have heard a number of people in denial say this is going to take 30 years,” Wells said. She said she believes that the technology is ramping up far more rapidly than most people think, and the ability to mass-produce autonomous vehicles is just around the corner.
“Based on the predictions that automakers have self-published, we are looking at a 10-year window, maximum, before these cars are widely available,” Wells said.
Walker agreed. “Insurers are going to see impacts in as few as five years from now, increasing significantly more so in the 10 to 15 year timeframe,” he said. “They need to be figuring out their response, now.”
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Here to stay
Weintraub is confident that vehicle insurers will always have an important role to play in vehicle ownership and operation. “There is simply too much risk and too much change going on to believe that just because fewer accidents happen that less risk exists,” he said.
Yet that doesn’t mean that insurers can remain static.
“Technology is fast advancing, consumer behaviors and expectations are evolving and insurance products are also evolving,” Bengtson said.” With so many moving parts, a mind-set shift is required for insurance carriers to break with convention and become more innovation-focused.”