Tesla, Volvo, and Cadillac have all released a vehicle with features that push them beyond the standard level 2 features and nearing a level 3 “self-driving” automation system where the driver is still needs to be there, but the car can do most of the work. While there have been some notable accidents, most of these were tied to driver errors or behavior and not the technology. Still autonomous vehicles hold the promise of potentially reducing traffic accidents by more than 90% if widely adopted. However, fewer accidents and a reduction in the potential for human error in driving could change the function and formulas of the auto insurance market.
Tesla’s semi-autonomous autopilot has been in the market for over the year and insurance companies have responded to the new technology in various ways. Some insurers, like the innovative company Root, have recognized the safety benefits of even semi-autonomous technology and offered drivers of such vehicles a discount on their insurance premiums for its use. Others, however, are likely charging higher rates pointing to a 2017 AAA recommendation stating that even with the enhanced autopilot Tesla owners have filed more claims and those claims tend to be more expensive. More generally insurers seem to have not factored in the potential benefits of semi-autonomy into their rates yet and instead focus on the costs of the vehicles and repairs. But as more cars with such semi-autonomous features hit the road, consumers will likely demand new products. As cars become safer, the insurance market is likely to shrink with at least one report estimating a reduction of 40% of accidents if even only the current level of Autopilot was widely adopted.
Since most states require drivers to carry insurance on their vehicles, it will be necessary for the insurance market to provide products in order for widespread adoption of driverless cars to occur. At the same time insurance typically regulated at a state level allowing widespread experimentation to occur before national norms emerge. This widespread insurance requirement is different from other disruptive technologies, such as artificial intelligence or 3-D printing, and therefore for widespread adoption to be possible the insurance market or its related government policies must adapt sooner rather than later.
It is becoming increasingly clear that autonomous vehicles will disrupt the insurance industry even before they become the majority of vehicles on the road. As a June report from KPMG noted the acceleration of autonomous technology has progressed more rapidly than anticipated and as a result the auto insurance industry may arrive in a chaotic middle sooner than anticipated. If the industry fails to adapt, the report notes, the auto insurance sector could shrink by almost $137 billion. Some of the earliest adaptations will still rely on individuals who own the car, but as the technology is likely to change car ownership entirely new insurance policies and coverage will need to evolve. If auto insurance companies choose like many today not to adapt to these changes, they may find themselves displayed by a new industry that does.
Innovators recognize that autonomous vehicles may disrupt the existing auto insurance market and in some cases are seeking partners to determine how to develop policies to embrace and encourage acceptance of the new product. Working directly with innovators is likely to allow insurers to offer the products needed to allow both widespread adoption of the new technology and create or maintain competitive policies as the auto insurance sector changes. Such collaboration is probably most useful in the ride-sharing space where the lines between corporate and individual owners can be blurry.
Another way to potentially disrupt the insurance market will be for the manufacturer to actually offer or hold the insurance on the vehicle. Tesla is already trying such an all in one price in some Asian markets. Tying insurance in with the cost of the vehicle would skip the middle man, but also may offer less choice to consumers. Still such options are likely to be more appealing when the technology involved and not humans are likely the risk being insured.
These early attempts to respond to semi-autonomous vehicles show that some stakeholders are already trying to avoid a chaotic middle period. Just as with technology itself, the accompanying insurance market will likely have to go through experimental design and trial and error before arriving at a new market equilibrium. If the auto insurance industry does not respond to increasingly autonomous vehicles, it runs the risk of negative consequences including:
- As previously discussed, the industry itself would shrink significantly;
- A lack of flexibility and adaptability further creates chaotic middle where courts, consumers, insurers, and regulators are uncertain of who and what is covered and where the responsibility for any damages should lie;
- Missing the opportunity to expand their services into new technologies or create new products that respond to consumer preferences in light of these technological changes.
It will be interesting to watch if the current players in the auto insurance market are able to overcome and adapt to these challenges or if new entrepreneurial disruptors emerge along with the new technology.
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.