Driverless Cars and the Future of Insurance

“The technology to do an autonomous car has been around for a while. We’re now seeing them; we’ll see a lot of talk about them. The real issue is exactly how they are able to be part of the fleet of vehicles on the road in America, and that is probably not something that need keep anyone awake for quite some time.”
Glenn Renwick, CEO of Progressive—February 2013

Advancement in various technologies is being developed faster today than ever. One technology trend I have been reading about and studying is the impact of driverless cars on the industry. If you believe Renwick of Progressive, the time to worry will be quite a bit into the future.

I’m not so sure. I am becoming convinced that the impact of this technology on the insurance industry will be sooner and greater than most people realize. While the future is notoriously difficult to predict, the following are a few reasons why I am paying attention.

In 2008, a driverless car could go about two miles on a closed course. In 2012, Google’s driverless cars logged over 300,000 miles on actual roads. The technology appears to be developing faster than most realize.

Volvo—known for auto safety—predicts they will be able to eliminate crashes for anyone driving its cars by 2020. That’s only seven years from now. Nissan has also announced similar plans. It seems that Google has sparked a technology development race in the auto industry—and this will spur rapid technology innovation.

If accidents are reduced, claims will drop. Google predicts it can eliminate 90% of auto accidents. While this number is hard to believe today, even if the drop is only 25% of today’s level, a $1,000 car insurance policy would drop to $750. What happens to agents’ commissions?

Car insurance revenues have been flat for many years for a wide variety of reasons.

This advance will disrupt other industries. If there are fewer accidents, we will need fewer emergency rooms, hospitals, doctors, prescriptions, tow trucks, collision repair shops, and replacement automobiles. How will each of these industries respond? And the need for insurance for each of these industries will be reduced further, affecting insurance agents and carriers.

A full self-driving car may be less of an issue in the near future than driver assistance safety technology. These systems are already being included in new cars and may have a much larger, and earlier, impact on claims cost.

The U.S. Department of Transportation is already working to require black boxes and back-up cameras in new cars. The government could be pushing the use of this technology to help control health insurance cost and to reduce the need for new roads and road expansion. That will accelerate adoption.

It may be that countries outside the United States will adopt this faster than here. Think about China and Brazil.

As an industry, we should begin thinking and talking about these issues now. While this is not a trend we can stop—we can start thinking about how to adapt. In the last five years, there has been a continued progression of companies that go out of business because they are not able to see into the future and take steps to adapt.

Daniel Burrus, in his book Technotrends: How to Use Technology to Go Beyond Your Competition, said, “If it can be done it will be done. If you don’t do it, someone else will.”

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