Self-driven to extinction: Will automated vehicles mean the end of auto insurance?

Nick DiUlio

It doesn’t take long to imagine the many perks of a self-driving car. Extra time for phone calls, emails and text messages, for instance. Maybe even a power nap. But the advantages don’t stop with creature comforts. According to report released in August 2012, a robotic car also would be a much safer car -- which could mean the eventual end of car insurance as we know it.

The report, "Self Driving Car: The Next Revolution," was written by the Center for Automotive Research and consulting giant KPMG LLP. Based on interviews with leading technologists, automotive industry leaders, academics and regulators, the study concludes that “vehicles that cannot crash — or at least cannot crash under normal operation” possibly will be available within two decades.

In essence, robotic cars of the not-too-distant future will be completely aware of their environments — including other vehicles, objects, pedestrians and buildings. They also will adapt to various weather and road conditions while adjusting speed, acceleration and many other factors that work toward minimizing chances of a collision.

“At the very least, (self-driving cars) would change insurance underwriting models, which are based on driver behavior,” the report says. “It’s possible it could even end the need for car insurance.”

And the technology is already out there. Nevada recently granted licensing for Google to test its self-driving car on public roads. In August 2012, the U.S. Department of Transportation launched a program to test almost 3,000 vehicles in Michigan that are equipped with devices that allow them to “talk” to each other and as well as to traffic signs and stop lights.

“The thought is, if a vehicle can’t crash anymore, why do I even need insurance?” says Richard Wallace, director of transportation systems analysis at the Center for Automotive Research and co-author of the study. “The possible implications are very significant.”

Fewer accidents = fewer claims = less insurance

The majority of auto insurance claims come from accidents on the road — everything from minor fender-benders to deadly crashes — and the advent of automated cars could significantly reduce these claims.

In May 2012, Donald Light – insurance research director for consulting firm Celent – authored a report that looked into the effect that self-driving vehicles might have on the insurance industry. Light concluded that with the combination of telematics (the collection of real-time driving behavior), collision-avoidance technology, automated traffic law enforcement and robotic cars, auto insurance eventually may face extinction.

“The great bulk of insurance premiums today come from the anticipation and possibility of accidents and damages to you, your car, yourself or other people,” Light says. “If we cut those down by 90 percent or more, you’re looking at the required premium cost dropping by 90 percent as well. Maybe more.”

In other words, with more and more self-driving cars on the road, fewer and fewer car insurance claims would be filed each year, lessening the demand for — and cost of —insurance.

Legal implications

One possible downside to the accident-free utopia of our self-driving future is the legal complications that could arise. For example, what would happen if a driverless car rear-ends another vehicle? It’s the vehicle’s fault, not the driver’s … right?

“We don’t know who’s to blame in this type of situation,” says Tom Simeone, a personal injury attorney and part-time law professor in Washington, D.C. The driver could sue the car manufacturer, the seller or the servicer of the car. “The blame could get passed on and on," he says, "and I think this technology will go through some real growing pains in that respect.”

Still, a little insurance would be nice

Even if self-driving vehicles eventually reduced accidents by as much as 90 percent, auto insurance never will be entirely obsolete, says Jim Whittle, chief claims counsel for the American Insurance Association trade group. For one thing, the chance of malfunction will always exist. Furthermore, self-driving technology won’t do anything to prevent the unexpected, like a tree branch falling on a parked car.

“These self-driving vehicles still may have accidents, regardless of the technology,” Whittle says. “There could be a system failure, extreme weather conditions, and I’m certain these self-driving cars won’t prevent every person on the road from driving because many people don’t mind taking the wheel. So no, I don’t see the Jetsons coming along anytime soon.” 

Rather than full elimination of auto insurance, Wallace says he expects insurers will slowly begin to roll out premium discounts — like those offered for anti-lock brake systems or air bags — once it’s demonstrated that self-driving vehicles significantly reduce crash risks.

“Right now, it’s just too early to say what the impact is going to be on auto insurance premiums,” says Mike Barry, a spokesman for the nonprofit Insurance Information Institute. 

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