How Self-Driving cars Might Change the Auto-Insurance Industry

A few years ago, Dan Peate, an entrepreneur based in Southern California was interested in buying a Tesla Model X. As he pondered upon that thought, he decided to give his insurance company a quick call and ask what the insurance cost of that particular Tesla vehicle would look like. To his dismay, the insurance company quoted him a staggering $10000 a year.

As much as it is said that autonomous vehicles will make the roads much safer, they will also affect how the insurance industry works due to the complexity they come with.  There is a myriad of problems that are likely to be presented by self-drive cars, including accidents. Tesla has already encountered some difficulties with its self-drive (autopilot) mode.  Moreover, cameras, radar, and revolutionary LiDAR will be tasked with foreseeing trouble better than our senses. Computers do not make human errors, but even so, they still pose their own unique challenges.

After Peate’s experience with his insurance company, a need to launch an insurance service that would cater for the vehicles that use automated mechanisms was triggered. By then, he had accrued some experience in insurance with Hixme, a health insurance firm he had started some time back. He got determined to unveil an insurance company that would cover the partially automated drive mode cars as well as the autonomous vehicles.

In his quest to gather enough relevant information, Peate said that insurance underwriters found it fit to charge more because the data on self- driving cars was limited. With just a few Model X cars on the road, the much-needed data on safety was almost non-existent. Peate, further found out that, instead of waiting for more self-drive cars to be made and put on the road so that they could collect data from the accidents that would occur, they could use the data that companies such as Tesla and others who collected data on their vehicles with the intent of improving their models. This data could then be used to underwrite insurance.

Finally, Peate announced that he will be launching Avinew on Jan 30th with funding spearheaded by Los Angeles Crosscut Ventures. This new firm will provide an insurance product that will evaluate the way drivers use autonomous features on cars from companies like Nissan, Ford, Tesla, and Cadillac. The discounts accorded will be determined by how the autonomous feature is used. Avinew has also worked to get agreements with most car manufacturers and is still trying to get more on board. According to Peate, Avinew will access the driving data once a customer authorises them to do so.

The rise of self-driving cars would cause a massive upheaval in the insurance industry. More so, because over 90% of car accidents that happen are attributed to human error. If no one will be driving, why would auto insurance be required?  All the revenues that auto insurance companies collect are solely dependent on somebody being behind the wheel when the error occurs.

Michelle Krause, a senior manager at Accenture Insurance, pointed out that major players in the industry are paying attention to the technology advancements responsible for automation so that they can have an insight of what kind of future opportunities will be available for them. In the year 2017, Krause’s group, in conjunction with the Stevens Institute of Technology based in New Jersey, published a report predicting the kind of problems that insurers would have to deal with if automation was to become dominant across the industry.

By the year 2035, insurance premiums could be affected by a drop of up to 12.5 %. Furthermore, the authors of this report discovered that as much as the new insurance line of products created by autonomous cars counteract the possible losses,  decreasing premiums would finally rise beyond the gains.

Rodney Parker, an associate professor of operations management at the Indiana University, said that the liability was likely to shift from an individual to the manufacturer as well as the licensers of the software that drives the AV. This would translate to more insurers actually selling fewer policies to drivers while selling more to companies. In addition, car makers and suppliers of sensitive vehicle components such as sensors, software and communication systems are going to bear the responsibilities of their components failing, rather than the driver’s carelessness.