Driverless Cars Threaten to Crash Insurers’ Earnings
The technology may be decades away, but firms are already scrambling to figure out how to deal with an expected decline in premium revenue as autos become safer
The insurance industry has a $160 billion blind spot: the driverless car.
Car insurers last year hauled in $200 billion of premiums, about a third of all premiums collected by the property-casualty industry. But as much as 80% of the intake could evaporate in coming decades, say some consultants, assuming crucial breakthroughs in driverless technology make driving safer and propel big changes in car ownership.
As the threat approaches, U.S. insurance executives are spending millions and embedding with car companies, testing the technology themselves, and wrestling with whether to lower prices as parts of the autonomous future hit America’s roads.
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Tesla adds a self-steering and parking function to its Model S and Model X that pushes the boundary on vehicle autonomy for the masses, but it bows to regulators on important issues. Photo: Tesla (Originally published 10/14/15)
For the actuaries who set insurance rates, it is a puzzle like no other: How do they prepare for a world of so many fewer auto accidents? In the future, will underwriters be insuring drivers or computer code?
“Change is coming and we need to get ahead of it,” said Allstate Corp. Chief Executive Tom Wilson in an interview. The suburban Chicago insurer is spending millions on research for new products and services that involves more than 200 data scientists and tech experts at a company it founded called Arity.
“It isn’t going to happen tomorrow but it is going to happen soon,” he said.
So far, however, the industry hasn’t made dramatic changes to the way it prices car insurance. Truly autonomous cars are years away from dealer showrooms, and many insurers say there isn’t enough data to determine how much safer even some of the newest “semi-autonomous” gear makes America’s roads.
Highlighting the technological challenges still ahead for driverless-car makers, federal authorities in late June disclosed a probe into the May death of a 40-year-old who was killed while operating a Tesla Motors sedan on “Autopilot.”
For insurers, the key to determining how much to charge remains predicting the likelihood that accidents will happen and how much they will cost in repairs and medical care for the injured.
To get that figure, actuaries know how many billions of miles cars typically are driven and how that translates into accidents—currently estimated at one fatality for about every 90 million miles driven in America. They know that male and female drivers have different crash rates, and age matters. And they know that people who have caused wrecks or have certain traffic violations are riskier to insure.