It’s crazy to think that we are headed down the road of having completely autonomous vehicles drive us around from one place to another. In the coming decade, our roads will be flooded with self-driving cars. Our time in the car can finally be productive – we can catch up on emails, put on makeup or read a book.
What impact will this new-found freedom have on the auto insurance market and how the current policy language responds to claims? Will it translate into cheaper auto insurance premiums? Is the insurance industry ready for this change?
Perhaps more importantly, when a vehicle is engaged in autonomous mode, who bears the liability for any accidents? Would it be the manufacturer, or the owner? Right now, it’s undetermined.
Levels of Autonomy
As far as liability, there are different levels of automation with electronic vehicles. The U.S. Department of Transportation rates a vehicle’s ability to self-drive from level zero (none) to level five (fully autonomous). From levels two to four, where there is still an element of human oversight, accidents can be attributed to human error, which makes up 94% of accidents. In this case, the driver is still liable for any at-fault crash that occurs. It’s only when the level moves to five that the liability switches to the vehicle manufacturer.
The Effect on Premiums
Experts are already weighing in with predictions that auto premiums could drop significantly due to a significant decline in frequency of crashes. However, the severity of claims could rise due to the increased cost of the technology and the highly litigious social climate. Either way, auto insurers will need to find new streams of revenue to offset generally lower premiums. They could consider the following:
- Manufacturers Liability. Failures of the software or a manufacturing defect can lead to significant liability for the manufacturers, which will have to take ownership and carry more insurance coverage for this new exposure.
- Additionally, with the increased use of forefront technology, the vehicles need to be protected against hacking, cyberattacks, etc.
On top of lower premiums, there are some additional impacts that electronic vehicles will have on the insurance industry:
- Claims history and driving behaviors will become irrelevant. Insurance costs might depend more on the type of vehicle and the manufacturer, rather than the owner/driver of the vehicle.
- The liability will shift from the driver to the vehicle (manufacturer).
- Less fraud. The information available to insurers will be coming from telematics and sensors, not from humans.
In an era increasingly influenced by autonomous vehicles, insurers will encounter challenging decisions. They can continue with their conventional business practices, acknowledging that premiums will steadily decrease due to the shift in risk transfer, reduced incidents, and a decline in vehicle ownership. Alternatively, they can adapt their business strategies to align with this emerging trend.
Want to Learn More?
The experts at RCM&D can help you navigate this new and growing trend. Reach out to a trusted advisor today to learn more about how a partnership with RCM&D can benefit your business.