How Self-Driving Cars May Disrupt the Auto Insurance Industry
According to the Hollywood timeline of scientific advances, we should all be cruising around in flying cars, riding hoverboards, and teleporting to distant destinations. But while technology hasn’t quite kept pace with our imaginations, there is one sci-fi innovation in our midst that is changing the way we move about the world: self-driving cars.
Many major technology and automotive companies are currently working on making self-driving cars a reality, and some, like Tesla, have already incorporated some automation into their vehicles. But these early innovations have also led to a handful of headline-grabbing accidents that highlight the risks of this new convenience. As automation increasingly becomes a part of our motor vehicles, what impact will it have on automotive insurance?
The Road to Implementation
There is much debate over when driverless technology will become widespread. While some companies are already selling cars with self-driving capabilities, many experts believe that fully automated cars are still some ways off. Artificial intelligence technology has been proven reliable when operating in predictable conditions. But toss a snowstorm, dirt roads, or other atypical conditions into the mix, and you still need a human to make observations and choices in the moment.
One of the remaining obstacles to fully automated cars is the development of technology that can accurately and consistently distinguish between different kinds of objects. To be reliable and safe, AI technology that operates the cars of the future must be able to distinguish between humans, animals, and inanimate objects. Another roadblock in the way of a full self-driving roll-out: government regulations and automotive insurance.
Rethinking Liability
Today, responsibility for car accidents rests on the driver. But what happens when a human is no longer the driver of the car? This is a particularly tricky question in a state like Texas, which is a “tort state” when it comes to auto insurance. This means that the person who is found at fault for an accident is held responsible by the state’s laws for paying out the cost of an accident. In the case of driverless cars, who does this responsibility shift to — the car manufacturer, AI programmers, or whoever is in the driver’s seat?
These questions have already created some disruption in the auto insurance industry. Coverage of Tesla’s vehicles can cost so much with traditional carriers that the company has started rolling out its own insurance products in California with the intention to spread to other states. But this appears to be only a stopgap in a question that will ultimately need to be resolved by government regulators. State and federal governments will have to work with insurance companies to create a clear framework around who is held liable for damages in an accident involving a self-driving car. This could include manufacturers, sensor vendors, software developers, and body designers. In other words, insurance companies that are used to writing insurance to cover personal liability will have to shift to issuing policies that cover product liability.
Undermining Underwriting
The way insurance companies currently underwrite auto policies will also change as self-driving technology becomes more widespread. Today, policy costs are often determined by looking at the age, record, and background of a driver. Where the driver lives, how many miles per year they travel, and how old they are will also impact the total cost of an insurance policy. But when you substitute that driver for a piece of technology, none of those criteria work anymore.
Self-driving car manufacturers argue that this is a good thing. They believe their vehicles can eliminate human error from the insurance equation. Because most auto accidents involve a mistake on the driver’s part, self-driving cars should be safer and lead to fewer accidents. Rather than driver profiles, insurance companies may shift their underwriting to look at other factors that lead to safe self-driving, including the number of dedicated self-driving car lanes that exist in a given area, or data collected from apps and other devices installed in cars to monitor their use.
Broader Behavioral Shifts
The implementation of self-driving cars may also raise new questions that insurance companies don’t have to tackle today, like computer hacking. One of the dystopian fears that comes with widespread use of AI technology in car operation is that it may leave the machines vulnerable to hacking by outside sources. In theory, a bad actor could tap into a car’s computer system and take over control, disable it, or manipulate its use. That is a potential risk that insurance companies have never had to think about, let alone figure out how to issue a policy to cover.
Another impact self-driving cars may have on the auto industry is an accelerated shift away from car ownership. Already in some urban environments, ride-share apps have led to a decline in car ownership, particularly among young people. One can imagine a future in which urban transportation is achieved through a fleet of self-driving cars continuously circling a city and picking up and dropping off riders. In this scenario, insurance companies may no longer have individual customers to sell policies to; instead, they will compete over insuring large fleets of vehicles.
But this sci-fi scenario is also a reminder of the limitations of self-driving technology. It may be more useful in urban environments than rural environments, and so its implementation may not be universal. Self-driving technologies may be useful in operating certain kinds of farm equipment, but they may also prove unappealing to those who still want to drive with their own two hands. In other words, in addition to technological and regulatory obstacles to implementation, there are also cultural considerations.
In the near term, that likely means we’re heading toward some hybrid version of a driverless future, and insurance companies will need to continue to offer the products customers rely on today while also adapting to a rapidly changing world.
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