Driverless cars and driverless car insurance will seem determined to be part of our future. Google is building prototype vehicles that don’t require a human driver and would put all of us in the passenger seat. Other car manufacturers are doing the same. Volkswagen expects to put out their first driverless car by 2019. Audi is even more aggressive, predicting they will have models available by 2017. Other manufacturers such as Ford, Toyota and Nissan all have estimated production dates by 2020. Driverless, or fully autonomous, vehicles could be a reality in a relatively short amount of time.
Driverless cars raise a number of issues such as the future of car insurance and how it is assigned, billed, and processed. Some people such as Noah Buhayar and Peter Robison, published on Bloomberg.com at are asking the question, “Can the Insurance Industry Survive Driverless Cars?”
Car insurance rates could drop dramatically. Driverless cars could mean significantly fewer accidents. While a significant decrease in accidents could mean fewer payouts it could also mean much lower premiums for the insurance companies. If your driverless car is as safe as the manufacturer hopes, your coverage needs will go down as well, meaning even further lowered premiums. The insurance companies are aware of the financial implications of this new technology. According to the Bloomberg article referenced above, “Auto insurance has long been a lucrative business. The industry collected about $195 billion in premiums last year from U.S. drivers. New customers are the source of so much profit that Geico alone spends more than $1 billion a year on ads to pitch its policies with a talking lizard and other characters. Yet even Warren Buffett, whose company, Berkshire Hathaway, owns Geico, is talking about the long-term risks to the business model. “If you could come up with anything involved in driving that cut accidents by 30 percent, 40 percent, 50 percent, that would be wonderful,” he said at a conference in March. “But we would not be holding a party at our insurance company.”
The importance of being a safe and responsible driver becomes unimportant in a driverless car. If your car can operate without you behind the wheel AND prevent you from being in an accident at the same time, much less importance will be focused on the car owner. Instead, insurance companies might look at outside factors to determine coverage levels and prices. Instead of examining the driver’s age, driving record and history, the company may look at weather conditions where you live and the potential for damage to the vehicle from other elements.
Car insurance companies are already exploring other sources of revenue. The insurance companies are well aware of the financial implications of the driverless car technology. The loss in revenue is projected to be significant. To combat this financial loss some companies are already working on alternative revenue streams. For instance, per “Tom Wilson, CEO of Allstate, wrote on his post “Can the car insurance business survive driverless cars?” is thinking about selling coverage for other products, such as mobile phones. He’s also considering using data that the company is already collecting about its customers. For example, they track their customers’ driving behaviors so they can offer rewards for safe driving; they could also potentially use that information to send customers coupons as they drive by retailers.” Your insurance company is not sitting idly by and waiting for the collapse of the industry. These companies are actively strategizing to find additional income and mitigate losses.
The focus of car insurance could shift to the car manufacturer. While accident rates will go down significantly and premium rates could plummet as well, the car manufacturers could have a much larger liability. If you are not driving your self-automated car, how could an accident be your fault? While this means a much smaller liability for you, it places the burden squarely on the manufacturer. If the driverless cars technology fails and causes an accident, it could be costly for the manufacturer and that will give the insurance company an opportunity to recoup lost premium revenue.
Driverless cars can impact the number of cars on the road. Driverless cars could be so convenient that everyone will want one. You and everyone you know may send your self-automated vehicles out to run errands and perhaps even drive around the block while you finish a few quick errands. On the other hand, if driverless cars start out at a high price point it may price some people out of the market. If driverless cars are not readily available to everyone it could encourage ride sharing and put fewer cars on the road. If there are fewer cars on the road, there are fewer accidents and premiums and again the insurance companies face a financial loss.
Imagine riding to work with 2 of your coworkers and everyone being able to talk, read or work instead of driving. Imagine being able to send your car out to pick up your dry cleaning or your laundry. This may be a reality in the near future. While the incredible leaps and bounds of technology bring with them exciting opportunities they also have the potential to bring a staggering drop in revenue for the insurance industry. The driverless car will not be in every driveway tomorrow and the transition period could be lengthy but as we get closer to the self-automated car being the norm, there will be substantial changes to the insurance industry and how your car insurance and rates are applied.
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