Why it's full speed ahead for auto insurers on autonomous cars

Every week it seems automotive manufacturers take one step forward and one step back on the prospects for self-driving vehicles in the near-future. Skepticism continues to mount over how soon fleets of self-driving cars could hit the open roads, with both the Wall Street Journal and the New York Times highlighting some of the pitfalls automakers are facing. Meanwhile major automakers continue to push back the timelines for the commercialization of self-driving technology, including autonomous ride hailing services.

All of this news could be discouraging for auto insurers who had been considering the new opportunities that self-driving vehicles present. We anticipated in 2017 that self-driving cars would actually boost auto insurance premiums (at least in the short-term) and create new opportunities in three key areas:

    1. Cybersecurity
    • Product liability insurance for sensors and/or algorithms
    • Insuring against infrastructure problems.
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    A Pony.Ai autonomous car pulls into traffic in the Nansha district of Guangzhou, China on Wednesday, 10 April 2019.

    Insurance carriers agree with that assessment: 69 percent of insurance executives in our recent Technology Vision survey said that they were optimistic that autonomous vehicles would bring new premiums to the auto insurance industry by 2025.

    While the timelines for full-maturity and mass adoption of autonomous vehicles are likely to remain in flux, it’s clear that insurers who can navigate this changing technology environment could stand to win market share. As a result, insurers need to press forward with creating new products that cater to autonomous vehicle owners, including commercial fleets. A more cautious wait-and-see approach could leave them vulnerable to future disruption.

    It’s clear that insurtechs and other nimble upstarts are moving quickly in this space, securing funding from venture capitalists to design insurance programs around vehicles equipped with advanced active safety features, including adaptive cruise control. This needs to serve as a wake-up call for the major players to move faster.

    For all the talk about technology improving cars and making them safer, it appears that in the short-term they could cause more accidents and damage. A recent State Farm study found that vehicles with adaptive cruise control (ACC) and lane keeping assistance (LKA) actually encouraged more dangerous behavior among drivers. Drivers with these features were more likely to read or send text messages, use cell phone apps and use video chat on their cell phones than drivers who didn’t have these features.

    Meanwhile older drivers are struggling with the high-tech vehicles. According to research from the AAA Foundation for Traffic Safety, drivers between 55 and 75 took their attention off the road for an average of 4.7 to 8.6 seconds longer than drivers between 21 and 36 when performing tasks such as programming navigation or tuning the radio using in-vehicle infotainment technology.

    The good news for major auto insurers is that while insurtechs are developing their own offerings, they may be less likely to capture market share in the era of self-driving or semi-autonomous vehicles. This is because consumers who tend to own vehicles with advanced-technology features and self-driving capabilities are typically older, more affluent drivers and they are less likely to be price sensitive or approach a start-up their automobile insurance.

    As semi-autonomous vehicles start to give way to truly autonomous cars, the real competitive threat for insurers might come from a different direction. Nearly two-thirds (64 percent) of insurance respondents in our recent research agreed that vehicle manufacturers will—via product liability coverage—assume a bigger share of the auto insurance market by 2025.

    As ride-hailing companies and automotive manufacturers accelerate their rollout of self-driving vehicle fleets to serve the ride-sharing opportunity in major cities, they could also erode levels of private vehicle ownership and thus the market for personal auto insurance. The setbacks in the commercial launch of self-driving vehicles, in this context, could give auto insurers valuable breathing space as they determine how best to compete or partner with auto manufacturers and ride sharing firms in a changing market.

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