The Impact of Self-Driving Cars on the Auto Insurance Industry

The auto manufacturing business envisions a time when cars will drive themselves, and recent safety features are bringing that dream closer to a reality than most people realize. Current accident prevention systems, already in place, are drastically reducing the likelihood of fatal car accidents. These systems can detect an oncoming car, send a warning signal to the driver, and in some cases automatically apply the vehicle’s brakes to stop the vehicle.

Fatal accidents on the decrease

The number of fatal collisions on Canadian roads has decreased by 40 percent over the past 25 years. Between 2012 and 2013 those same accidents decreased by a whopping 7.3 percent, listing the lowest recorded rates due to fatal accidents ever to be reported. The U.S. National Transportation Safety Board says forward-collision avoidance systems could prevent deaths and injuries in up to 94 percent of all accidents. If car accidents fail to exist, what will happen to the auto insurance industry?

The auto insurance industry is massive. Last year alone Canadian insurance agencies wrote $21.4 billion in new premiums. The automotive manufacturer industry can see this number declining in the coming years. If the risk of driving a car becomes much lower, then the need to insure it will become much less as well. U.S. Research firm Celent predicts that between 2018 and 2022 American auto liability premiums will decline by 60 percent due to advances in safety technology improvements.

Accident numbers down but claims are up!

This decline, however, is nothing new. The auto insurance industry has been adapting to increased safety measures in vehicles for decades. Although accidents have become fewer, they have become much larger in severity and the size of the claims. The frequency of claims fell 63 percent between 1963 and 2013, but the severity and cost of the claims increased a whopping 1,251 percent in that same period. Some say this increase is due to the increase in medical costs, but also due to the repairs of intricately designed vehicles being more costly as well.

There is still plenty of dispute as to whether these automatic, fully self-piloted vehicles will become a reality. Many believe keeping an updated GPS system in the vehicles would be next to impossible and the cars would have trouble differentiating between the size of objects in the road.

Even if auto manufacturers do figure out all of the details to creating a self-piloted car, insurance companies will still be a requirement for drivers. The aspect of liability will still come into play regardless of whether the car is operating itself or a driver is at the helm. Liability will need to be shifted away from the human owners and on to the car manufacturers. That type of liability insurance would be written by commercial insurers rather than personal insurers. Car owners will still have the need for comprehensive coverage as well which protects against damage unrelated to accidents, such as a tree falling on your car or damage caused during theft and vandalism. There is still a risk that the technology could fail and the driver would have some form of responsibility for the accident as well.

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