Will Insurance Take the Plunge with Driverless Cars?

The first auto insurance policy was sold not long after the first fatal American auto accident occurred on September 14, 1899. A taxicab struck Henry Bliss as he disembarked from a cable car in New York City. The Travelers Insurance Company began selling automobile liability insurance the following year to provide financial compensation to those who fell victim to potentially dangerous, manually operated vehicles.

Over the years the automotive industry and legal agencies have progressively tried to lesson the dangers of driving. Following the success of speed cruise-controllers, they eventually required seat belts, protected occupants with airbags, and could even prevent a car being driven if there was alcohol in the driver’s breath.

We are mostly unaware of how much automation we already have in our cars already. Eraser reports modern cars may have as many as several dozen interlinked computers ‘adjusting the fuel and air that enters engines, triggering airbags, tensioning seat belts, preventing brakes locking, and even allowing us to open the door, sit behind the wheel, and operate a computer-controlled key.’ The National Highway Traffic Safety Commission is working towards standardizing distance-sensing automated braking as a mandatory feature for all vehicles.

Entering the Era of the Fully Driverless Car

While there has been some progress in reducing the number of U.S. vehicle deaths, Bloomberg reports these exceeded 40,000 annually for the first time since 2007. It is estimated that these crashes ‘cost about $432.5 billion’ putting a huge burden on the insurance industry and its clients.

So it seems the case is closed that humans driving cars is expensive and dangerous. It is not too farfetched to believe the government will eventually make driverless cars mandatory, just as they did with seatbelts and emissions regulations.

The Arguments in Favor of Self-Driving Autos

• The Financial Times believes the overall cost of car insurance will plunge. It predicts half U.S. traffic will be autonomous in 20 to 30 years’ time. Autonomous Research told FT the percentage clients claiming annually would fall from a current 9% to 2.4% in 40 years.
• USA TODAY is positive that driverless cars will enable safer travel. It believes the blame for accidents will shift from drivers to software, and vehicle suppliers. Alex Glenn and NerdWallet go as far as saying this ‘could leave auto insurance companies facing a dim future in which their business shrivels as the need for personal auto insurance fades’.
• The National Highway Traffic Safety Administration reported driver error was the critical reason for 95% of crashes in 2015. Almost unbelievably, using the accelerator as the brake caused 16,000 preventable accidents that year. This may happen when the brake-pedal-foot slips or the driver treads on both pedals in panic.

There seems little argument that driverless cars will cause fewer motor accidents, hurt, maim or kill less people, and save the U.S. economy a phenomenal amount of money. However, that’s not suggesting there will be no more collisions. There will just be less of them.

How Automated Driverless Cars Could Affect Insurance

We have an accessible solution for reducing the road-traffic accident rate. The population’s mind appears to be lagging despite railway trains and airplanes often travelling on autopilots. Google self-driving cars are proving successful despite the occasional misdemeanor.

Our lens is a bit foggy regarding the future of the automotive insurance industry itself. We have to wait for proven benefits to arise before we begin to see ultra cheap insurance rates. It seems unlikely the sector will survive in its current form for more than 20 years. We may see the end of some brokers, in favor of disruptive automated coverage as the pickings come down.