The insurance industry is no stranger to emerging technology, and in recent years insurers have embraced data-rich customer relationship management and sophisticated fraud detection. Now, the advent of driverless cars is again bringing the winds of change, and insurance professionals face the prospect that theirs is set to become the next disrupted industry. But while self-driving cars could put an end to some forms of insurance, as with all disruptive technology, they pose significant opportunities for those prepared to think outside the box.
For many in the insurance industry, driverless cars are rapidly becoming the elephant in the room. Giants such as BMW and Volvo are racing to launch the first autonomous vehicles, Google has been trialing driverless cars for years, and Uber has stated driverless vehicles will play a large part in the quasi-taxi company’s future. For Tesla Motors, the focus of development is firmly on driverless technology, and every new car produced already features self-driving hardware. Meanwhile, Ford aims to release high volumes of fully autonomous ride-hailing vehicles by 2021.
Driverless Cars And Insurance Technology
The insurance industry has long played a key role in shaping society through both hard and soft technology. From the fire insurance companies that successfully advocated for the widespread installation of hydrants to the increased work and landlord’s protections taken for granted today, the industry has been at the forefront of creating a safer, more inclusive world. Now the industry is set to realign itself again to embrace the revolutionary challenges and opportunities offered by driverless cars.
Self-driving vehicles won’t simply drive, they’ll coordinate their movements to avoid traffic congestion, adjust their speed to catch green lights, and link commuters with public transport services. Driverless cars use radar to capture data in difficult conditions like rain, fog and dust and ultrasonic sensors to detect objects in their path–both human and constructed. Their autopilot features allow them to change lanes, move seamlessly on and off freeways, park and even be summoned to and from your garage.
Are Driverless Cars Really Safer?
Already, driverless car manufacturers are claiming safety levels far superior to those achieved by human drivers. Yet, despite the convenience they offer, not everyone is enamored of a driverless-future. 94% of motor accidents are attributed to human error, yet research demonstrates people view self-driving cars with a mixture of fascination and fear.
A 2017 study by the Technical University of Munich of over 600,000 Twitter posts from countries worldwide indicates both intense distrust and exaggerated perceptions of the benefits of self-driving technology. Similarly, a 2017 survey of US attitudes conducted by researchers from Washington State University and Shanghai Maritime University showed that, while participants have a high opinion of the safety of self-driving vehicles, they’re reluctant to use self-driving taxis due to worries the technology is dehumanizing.
Driverless Cars Are Here To Stay
As daunting as many people are by the notion of driverless cars, these vehicles are here to stay. Trials of cars, buses and trucks are already operating on public roads around the world, and with the technology in place, legislation is soon to follow. London-based startup FiveAI is currently developing a comprehensive driverless car system, including a ride-ordering app, safety and insurance protocols, while trials across Europe are focusing on navigating high population densities and issues of international jurisdiction. Australian legislators are currently assessing the infrastructure needed to support driverless technology on the country’s far-flung roads, while in the US various states’ disparate levels of acceptance of the technology are making the development of a national policy framework challenging.
Moral Issues Surrounding Driverless Cars
Meanwhile, manufacturers are wrestling with some knotty moral dilemmas. In the event of an impending accident, autonomous vehicles will be programmed to assess the relative negative consequences of any action, choosing the least harmful option when faced with danger. Driverless cars can discern humans from animals and automatically prioritize human life. But what about a choice between hitting a child pedestrian and crashing the car to potentially kill the vehicle’s occupants? Heated debates rage around the world over the authority of third-party programmers to dictate the response of driverless vehicles in moral quandaries such as these.
Insurance companies face a host of gnarly questions of their own. Chief among them being who should be held responsible in the event of an accident, such as the owner or car manufacturer, and what new models of insurance will best meet the needs of customers using this new technology. As the risk landscape evolves, the industry will need to apply foresight and planning to embrace the rewards on offer in the transition to driverless technology.
How Will Driverless Cars Impact The Auto Insurance Industry?
Even in their emerging stages, driverless cars have a very low margin of error. As self-driving cars increase in prevalence, the risks of being on the road will reduce, and consumers may start to demand lower insurance premiums. Soon, self-driving trucks will revolutionize supply chain management. As accidents reduce in frequency and the need to pay drivers is alleviated, transport will become more economical. In turn, many factory inter-dependencies will increase. With the advent of self-driving trucks, factory lines will extend, as businesses that once sourced parts locally might do so internationally. With complex interconnections at play, the costs of claims for business interruption will rise, as incidents in far-flung factories impact operations.
Meanwhile, Uber has invested heavily in Otto, a startup designing retrofitting hardware and software for big rig trucks. 2016 saw the maiden voyage of a truck fitted with this technology, which for now operates only on highway systems. Innovations like these will radically change the nature of employment. Human truck drivers of the future may only be needed to pilot trucks along the short trip from the highway to the depot, and taxi drivers may disappear altogether.
The shift in operations will also impact several forms of business insurance. Business interruption insurance will need to be structured to accommodate the reduction in traditional disruptions to business, such as motor accidents, and liability insurance for professional drivers will eventually disappear altogether.
Challenges Of Driverless Cars
The interplay of human and driverless transport is already posing challenges, as high-end, partially automated vehicles become common in many countries. SAE International, a global association of engineers in the automotive, commercial vehicle and aerospace industries, classes our current state of partial automation as Level 2 in the journey to full mechanization. Today’s Level 2 cars can steer, accelerate and brake but require a human in the driver’s seat, with one hand on the wheel. While humans are still held accountable for accidents in these circumstances, the potential to challenge this at law seems stark and is set to increase with the intensification of self-driving technology.
How Long Will Humans Need To Be In The Driver Seat
The next three years should see the advent of conditional automation. These Level 3 vehicles will still require a human in the driver’s seat, but these driver-passengers will be free to engage in other tasks unless prompted by the system to resume control. While many manufacturers aim to launch these cars by 2020, the legislative infrastructure is still lagging in most countries. The next few years will see the implementation of highly automated vehicles, or Level 4 cars, becoming commonplace. This is what most people imagine when picturing driverless vehicles. These cars won’t require a human driver in reserve, and people will be free to sit in the back seat, answering emails or even catching some shuteye. Level 5, highly automated technology, could hit the road as soon as 2020, but these vehicles will initially be severely restricted in where they can travel.
While Tesla’s autopilot vehicles are already equipped with Level 3 capabilities, Ford plans to delay the release of driverless vehicles until it can leap straight to Level 4–launching cars with no brake, accelerator or steering wheel. CEO Mark Fields cites not distrust in automated technology but reservations about human-machine interactions as the reason underlying Ford’s decision, asking, “How do you make a responsible and timely handoff with the driver?”. Indeed the pedestrian death by a driverless car in Arizona in March 2018–the only one of its kind to date–occurred with a human “safety driver” in the driver’s seat.
Full automation is just a decade away. When this technology arrives, self-driving cars will run automatically all of the time and they’ll access the entire road network, including unsealed roads, functioning even in thunderstorms, heavy fog and other extreme conditions. Ian Christensen of iMOVE CRC, an Australian consortium of science and industry intent on bringing driverless technology to market, predicts that over the next 10 years freeways will split, with self-driving vehicles flying by six inches apart and standard vehicles subject to much lower speed limits.
It is conceivable that within the next few decades the only vehicles on the roads will be driverless. If accidents disappear, motor accident insurance may well become obsolete. In the meantime, the insurance landscape will be increasingly complicated as human and mechanical drivers interact. While driverless cars are unlikely to make mistakes, they can’t correct errors made by the humans around them–driver or pedestrian.
How Driverless Vehicles Will Change Almost All Industries
Despite the ethical, legal and structural issues self-driving cars invoke, the technology offers striking opportunities to proactive insurers. First, as driverless technology becomes increasingly commonplace, you will see a rise in new types of vehicles and businesses requiring insurance. Imagine a self-driving pizza business that not only delivers but cooks your pizza on route, or a long-distance hotel, automated camper vehicle that drives while passengers sleep, or a cruise ship on wheels.
Or picture this: a secure pharmacy vehicle, complete with an automated medication dispenser. For health insurers, poor primary medication adherence–that is patients failing to comply with their physicians’ recommendations in taking home their medication–currently leads to unnecessary return visits to doctors, poor health outcomes, needless re-hospitalization and higher insurance claims. Automated delivery of medication will not only reduce health insurance claims but will also offer car insurers a rich new market.
Hot on the heels of the insurance industry’s shift to customer-centrism, driverless cars are set to usher in another revolutionary change: a move from a business-to-customer model to one that’s inherently business-to-business.
How Driverless Vehicles Will Change Auto Insurance Prices
Driverless technology will have a direct impact on the way many insurance products are designed and priced. Over the next decade, the industry will begin to see manufacturers packaging vehicles with insurance policies, with no time limit other than the life of the vehicle. The whole nature of car ownership could change, with commuters renting cars in the way they now access Uber vehicles, to arrive at their door and transport them for a limited period. As insurers begin offering their products to fleets and car hire companies rather than owner-drivers, the competitive landscape will change.
In the driverless car future, models of insurance will shift, and insurance by the kilometer may become more prominent. In today’s owner-driver model, companies like Metromile have not gained traction with their campaign to insure low-mileage drivers at reduced rates. Yet the notion of insuring by mileage suddenly makes sense when vehicles are owned by fleets rather than individuals and when they don’t need to rest or even park.
Autonomous vehicles record every leg of their journey. Tesla’s self-driving cars, for example, obtain 360-degree visibility through surround cameras capturing up to 250 meters of range. With this technology in place, assessment of responsibility in the event of an accident will be streamlined. Fraud, long the bane of the insurance industry, could be a thing of the past while AI systems could automatically calculate the cost of a claim from a photograph of a damaged car.
Final Thoughts About The Driverless Car Revolution
The driverless car revolution is well on its way and for innovative insurance companies, the technology offers significant opportunities to enter new markets. While the industry faces significant disruption, including the limiting and eventual end of income streams such as personal motor accident insurance, new types of business will proliferate. Significant opportunities and exciting new prospects will be on hand for insurance companies ready to think big.