The Future of Self-Driving Cars
The idea of having a driverless car used to be a future fantasy, however, car manufacturers have been testing the technicalities of self-driving cars for years, in the hopes to turn a complex idea into a real possibility. However, the idea isn’t welcomed by everyone; especially those involved in the insurance sector.
Apart from consumers being hesitant of handing over full control of their driving abilities, insurance companies are keeping a close eye on developments as it could have adverse effects on current business models. Using Tesla as a prime example, they’ve managed to reduce crash rates by 40% since autopilot was installed in 2015, according to the National Highway Traffic Administration – which resulted in self-driving cars being safer than the ones currently found on the roads. Although collision-avoidance features such as blind-spot detectors and computer braking technology come standard in most cars these days, human error still seems to play an important role in how insurance companies generate an income.
According to GeekWire, by eliminating human error completely in the form of automated cars, accident rates could drop by up to 90%; greatly impacting insurance companies and the way they currently do business.
“If you believe that the autonomous technology is going to be saving lives, then you would want the automakers to have some sort of a protection,” according to James Lynch, chief actuary for the Insurance Information Institute. Who would be responsible in the event of an accident – the driver or the manufacturer? Rick Gorvett, the staff actuary for the Casualty Actuarial Society, explains, “At least the current thinking is that the manufacturers will ultimately be responsible for a lot of these future accidents when an automated vehicle is involved.”
However, there’s always a loophole in the case of a car that has semi-control over certain tasks. The driver may still have enough time to correct a problem if something should go wrong. If human error is removed, there’s always the risk of falling branches, inclement weather, vandalism etc. which then shift the liability onto the owner instead of the manufacturer.
As with assessing current vehicle crashes, the same procedure will be in place in order to determine the root cause of the accident. However, it could pose a costly long-term endeavor for car manufacturers – too expensive to even proceed with manufacturing self-driving cars.
“Details of that will be worked out by courts in individual cases and those individual cases will provide the backdrop against which insurers start determining their exposure and then eventually the rates that they charge,” says Bryant Walker Smith, a law professor at the University of South Carolina.
It’s no secret that Tesla has been selling car insurance policies with its vehicles in Asia forming part of their vision to one day sell insurance as part of the final price of their vehicles. It only makes sense that, when you reduce the overall risks involved in driving a car such as completely removing the possibility of human error, that the premiums should be reduced. However, this will hit the insurance industry hard over the next 25 years as the personal car insurance sector could shrink by up to 40%.
What does this mean for the South African insurance sector?
As the possibility of self-driving cars becomes more realistic, soon we may all be sitting in the back of a car being chauffeured around like highly important people. For those involved in the insurance sector, it would mean that drastic changes would need to be made in terms of how insurance is applied. Instead of basing car premiums on the ability of the driver, we’d need to focus on client relationships, product innovation, expense management and claims processing. Consumers would need to take out insurance policies protecting them from cyber-attacks, theft, and manufacturing faults. Insurance premiums would no longer be based on human error, but manufacturer defects.
As with any insurance company, the South African insurance sector would need to adapt in order to be able to compete with Tesla’s innovative car insurance. Although the transition would happen gradually, especially in South Africa, insurers would need to keep a close eye on the self-driving car industry and come up with a 5-10 year plan in order to deal with the changes before they come into full effect.