Will Self-Driving Cars Crash the Insurance Industry?

Insurance companies reveal fears over how crashless highways might affect their bottom lines

2 min read
Will Self-Driving Cars Crash the Insurance Industry?
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Insurance companies have been active participants in studies aimed at figuring out how self-driving cars will work in the real world. It makes sense, considering that before robocars take to the world’s roads, insurers must firmly establish who will be held liable in the event of a crash.

The Guardian reports that insurance companies are looking at the prospect of autonomous vehicles with trepidation. Assessing liability isn’t the problem. Instead some insurers fear that taking wheels out of human hands could make cars too safe, if that’s possible, and cut into their business. 

According to Cincinnati Financial, in its recent annual report to the U.S. Securities and Exchange Commission “technology innovations such as driverless cars could decrease consumer demand for insurance products.” Two other insurers, Mercury General and the Travelers Companies, also mentioned the deleterious effect that self-driving cars could have on the insurance business.

These insurers, however, are looking too far into the future, say observers. First, completely autonomous vehicles won’t appear for a number of years. While it’s true that Tesla Motors founder Elon Musk pronounced last fall that “a Tesla car [in 2015] will probably be 90-percent capable of autopilot,” and Nissan CEO Carlos Ghosn has predicted that the automaker will begin selling self-driving vehicles by 2018, most industry experts believe they’re engaging in wishful thinking.

Last June, we reported the release of an automotive industry report by Lux Research that said “the ability to operate autonomously under certain conditions...will be available in only 8 percent of 2030 model year vehicles”—and only then in places that have been extensively mapped. According to the report, the car that operates with complete autonomy after you tell it you desired Point B won’t hit dealer showrooms until well after 2030. 

And even today’s safety features, such as adaptive cruise control, lane departure warning, and back-up sensing, are available on only a small minority of cars on the road. As Russ Rader, a spokesman for the Insurance Institute for Highway Safety, told the Guardian:

It takes a long time for new safety features to penetrate the fleet that’s on the road because people hang on to their vehicles for a long time. Even when a feature is mandated by [government] regulations, it takes 3o years for it to penetrate 95% of the vehicles on the road.

That statement notwithstanding, Rader notes that automatic braking, which reduces the number of crashes and diminishes the severity of the collisions that do occur, is already beginning to affect the insurance industry. Crash-related injury claims, he told the Guardian, are much lower in cars equipped with systems that apply the brakes if they sense that a crash is imminent and the driver fails to act. So insurers know that it’s only a matter of time before the trajectory in claims, and in how much they can charge for coverage, will begin to affect their revenues.

Insurers aren’t the only firms whose regulatory filings reveal concern over how self-driving cars will affect their bottom lines. In its annual report, LKQ Corp, a Chicago-based auto parts company, admitted that with robocars on the road, “the number and severity of accidents could decrease, which could have a material adverse effect on our business.”

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We Need More Than Just Electric Vehicles

To decarbonize road transport we need to complement EVs with bikes, rail, city planning, and alternative energy

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A worker works on the frame of a car on an assembly line.

China has more EVs than any other country—but it also gets most of its electricity from coal.

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EVs have finally come of age. The total cost of purchasing and driving one—the cost of ownership—has fallen nearly to parity with a typical gasoline-fueled car. Scientists and engineers have extended the range of EVs by cramming ever more energy into their batteries, and vehicle-charging networks have expanded in many countries. In the United States, for example, there are more than 49,000 public charging stations, and it is now possible to drive an EV from New York to California using public charging networks.

With all this, consumers and policymakers alike are hopeful that society will soon greatly reduce its carbon emissions by replacing today’s cars with electric vehicles. Indeed, adopting electric vehicles will go a long way in helping to improve environmental outcomes. But EVs come with important weaknesses, and so people shouldn’t count on them alone to do the job, even for the transportation sector.

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