If cars don't need drivers, do drivers need insurance? by Nova Safo

02/04/2015 10:04

As driverless cars go from science fiction to fact, the multi-billion dollar auto-insurance industry is trying to figure out how not to be run off the road.

Today, 90 percent of car crashes in the United States are due to driver error. But that percentage could plummet as  autonomous and semi-autonomous technology makes driving safer.

The Insurance Institute for Highway Safety says that if all cars had some semi-autonomous systems, such as collision- and lane-departure warning systems, nearly a third of all crashes would be eliminated.

And with fewer crashes come fewer losses for insurers to cover and declining premiums,  says Donald Light, who researches the impact of technology on insurance at the consulting firm Celent.

"The overall size of the automobile insurance industry, over say a  ten-to-15-year period, is definitely going to shrink," says Light.

Auto-insurance premiums totaled about $200 billion in 2013. Light predicts that amount eventually could by up to half.  

"The amount of losses are going to be a lot less and the premiums are going to be a lot less," he says.

And safer, automated cars will not impact just the auto-insurance industry. There will be fewer injured drivers, less need for repairs and lower demand for replacement parts and roadside assistance.

Senior Vice President of Strategy Jeffrey Blecher of Agero, a roadside assistance and data-analysis company, says that the insurance industry is already adjusting its business model.

"The whole concept of usage-based insurance is understanding driver behavior and driver risk," says Blecher. "But when you get into a semi-autonomous car, what are you assessing? Are you assessing how the car drives?"

Agero is working with auto insurers to provide them with driver data collection tools, to find new ways of assessing risk and pricing premiums, and to create a research initiative to figure out safety questions with autonomous driving systems.

These are things the industry will have to figure out soon, says Blecher. That's because even if fully automated cars aren't yet zipping on highways, partially automated cars are already here.

Tesla has added an auto-pilot feature to its electric cars. Mercedes, BMW and Volvo have some automation as well. And Cadillac, Ford, GM and Nissan have all announced some amount of automation in their cars to come by 2020, at the latest.

"And what we don't know is do these systems actually improve safety or not? That's one of the fundamental questions," says Blecher.

That is exactly the question that Neville Stanton has been working on for about 20 years. He researches the safety of car automation systems at the University of Southampton in the UK.

Stanton has found that how safe a car is depends on how automated it is. And too much automation, he's found, is actually less safe.

"It takes drivers five times as long to respond in emergency in a fully automated vehicle as it does in a manually-controlled vehicle," says Stanton.

But, Stanton says, new semi-automated cars, which include features such as collision and lane-departure warnings, and blind-spot monitoring, are safer, because the driver is still in control.

"So the driver's still manually in control of the vehicle, but the automation's been there to support them in that driving task. So it's not taking over that driving task," says Stanton.

But how safer self-driving cars will effect an auto-insurance industry where premiums are based on crashes, loss, risk assessment and human factors remains unclear.

"As long as you own a vehicle, there's always going to be a need for some sort of liability insurance," says Michael Barry, a spokesperson for the Insurance Information Institute, an industry group.

While drivers might need less coverage if cars are safer, Barry says, insurers may find other revenue streams. For example, carmakers might need more coverage.

"There's product liability insurance today," Barry says, "But it will take on added importance for the manufacturers of self-driving vehicles, if in fact they become the target of lawsuits as time goes on."