July 18, 2013      

Those investors who again and again pick winners move on details, not ideas. Nowhere will this be truer than in the next decade with autonomous vehicles and trucks.

The idea of driverless ground transportation — everything from personal vehicles to long-haul trucks — is appealing, and it doubtless will draw increasing amounts of investment money.

But the smart money is going to be placed based on details. Details like who is liable for accidents? At the very top of the liability chain will be the firms that make autonomous-car hardware — tires, engines, lidar — and software — decision-making algorithms, lane-recognition apps, hey-driver-are-you-paying-any-attention-at-all apps.

At the other end of the liability chain are drivers and fleet owners. Google’s cars can get as cute and sophisticated as the winner of a toddler beauty pageant, but they won’t sell in real numbers until everyone understands the limits of their liability and the level of their protection.

Who’s to blame?

There’s a bonus for investors who educate themselves about liability. Besides identifying manufacturers that themselves are thinking about autonomous vehicles, strong, resilient insurance companies make good investment opportunities, too.

The first thing to understand is that many entities can be held liable for the same event.

That’s important.

Many people in both the driverless car and insurance industries think that Google, which has the top spot so far in this largely theoretical market, will self-insure cars outfitted with its technology.

Maybe, in this example, Google will pay for plaintiff damages and injuries, but to what extent would it protect the defendant driving a Google car? Most likely to a respectable level.

But surely there’d be some cut-off. What if a Google car is involved in an accident while the putative driver was playing blind man’s bluff with poker buddies along for the ride?

The questions go on to seeming absurdity.

Are state governments liable if traffic-control devices are poorly placed for car cameras? What if a theoretical Weather Channel weather/navigation app directs an autonomous car straight into a tornado?

Some of these questions are being asked now because, of course, elements of autonomy already exist.

Single out the believers

Scott Nelson, CEO of MILE Auto Insurance, a regional insurer in the Southeast, says the technology “is already having an impact” in people’s lives. Helping people back up and change lanes safely are two examples.

Nelson spoke at the Association for Unmanned Vehicle Systems International (AUVSI) convention this past June. His verdict, which differs from that of his peers’, is that this is a real change and that it is happening faster than many realize.

“Kind of the reason I was there was because I want our company to be on the forefront,” Nelson says.

Of course, as leader of a small player in the insurance industry, taking a contrarian position has few downsides and could propel MILE beyond large doubters if he is right.

In their book “Driverless Cars: Trillions Are Up For Grabs”, authors Chunka Mui and Paul B. Carroll describe “numerous conversations” with insurance executives who “just roll their eyes” when asked about the impact autonomous vehicles will have on insurance and vice versa.

Those who think driverless cars will happen believe “it will be decades before they are relevant,” Mui and Carroll write.

Unsurprisingly, Nelson says his firm has yet to sell a driverless-car policy.

Asked if he would sell a policy today to, say, a journalist (assuming he had an autonomous car), Nelson says, “That’s an interesting question. We would look at it. But, really, the risk doesn’t exist yet. We have no boilerplate [contract language] yet.”

He sympathizes with his peers’ skepticism.

When the people running U.S. businesses aren’t thinking quarter to quarter, they are thinking about the next three to five years. And even a proponent such as Nelson readily admits that fully autonomous vehicles are more than three years out.

Meanwhile, “the industry wants more testing,” he says. “The more data the better. I want to see more data from the road, because no test track is an adequate stand-in for the real thing.”

Nelson is not alone in liking semi-autonomous efforts, like Cadillac’s Super Cruise system, which is being tested on the open road. Ford has its own nascent efforts as do most of the Asian and European car makers.

“It would be great if all the manufacturers would contribute and share their data,” he suggests, because there is a lot riding on the next several years in both the vehicle and insurance industries.

Look forward to lower premiums with autonomous vehicles

Nelson (and, for that matter, Mui and Carroll) feels that some degree of vehicle insurance will always be needed. But, as a product, it will look as different in a decade as do today’s coupes compared to Ford’s Model T.

Assuming driverless vehicles take off, insurance-industry margins will at first balloon, the thinking goes, because people will be paying premiums based on the frequency and severity of non-autonomous driving.

However, margins will plummet as fewer people own cars, fewer people actually drive and fewer accidents happen. Fewer people will be paying premiums that will be drastically smaller, even if you account for the technology that might be damaged in a fender bender.

All the world’s imposing skyscrapers bearing the familiar names of insurance companies will (one hopes) buzz with the activity, but not the activity of insuring cars.

It’s possible that car makers could become insurers.

That or, just as when buyers pay for some electronics today at a big-box retailer, consumers might be pitched a third-party warranty. The warranty could include insurance.

“Nothing dramatic will happen through 2030, and I think that’s a little conservative,” says Nelson.

The task now is to figure out how insurance will evolve because few if any driverless cars will hit the road without it