We often look at technology as a driver for enhancing your overall approach to insurance business here at RiskHeads; today we’d like to look at a technology that may soon change the way automotive insurance works forever.
Driverless cars might sound like something from science-fiction but they’re not as far away as many people might think. Many cars already have driver-error reduction systems in place – sensors for detecting proximity, cameras to help with parking, cruise control etc.
Car makers are always looking to improve the driving experience and in Japan the government is working with Toyota, Honda, Nissan, etc. to introduce driverless vehicles by the year 2020. There’s still an indication that this wouldn’t be a fully “driverless” experience but rather that the driver would use manual control for local roads but switch to automated driving on motorways.
Over in America, Google have thrown their financial muscle and technical skills into their own driverless car project and while the car’s not ready for the road yet – they’ve seen some positive results in trials on racetracks.
Is this good news for the insurance industry?
Forbes magazine thinks not. They estimate that car insurance premiums in a driverless world would drop by nearly 75%. That’s because in the scenario envisaged there will be far, far fewer accidents and the risk that insurers protect against will nearly disappear. It means that savvy customers aren’t going to carry on paying the same prices for premiums and in many cases this might even cause the insurance company to drop out of the auto market permanently.
Some insurers argue that this won’t be the case. They point out that with previous technology introduction in the industry; whenever one risk is offset another arises. They often use the example of airbags which may cut down on fatal injuries but cause new types of injury through their use.
They also know that in the short-term, until driverless technology has been demonstrated to genuinely reduce accidents on the road, there’s an increased risk of using vehicles that let the driver take a nap.
Threats to Investment in Telematics?
There’s also the possibility that developments in driverless technology may send telematics to the kerb. It’s not that they are entirely exclusive technologies but it is a given that driverless technology will be an enormous amount more effective than an insurer-led telematics project. Insurers should keep an eye on developments very closely.
Where can insurers position themselves to best effect?
We think there are two avenues for insurers to take. The first is one that will be adopted by many – the ostrich. A company becomes a dinosaur when it buries its’ head in the sand. These insurers will ignore the benefits of driverless technology and simply refuse to insure drivers or worse expect massively increased premiums for taking on the early risk. It might work short-term but it’s likely to leave consumers with a bad taste in their mouths and to encourage them to go somewhere better as soon as they are able.
The second approach is simple. Smart insurance companies will lead the charge to accurately assess risk for driverless technology. They’ll develop innovative products that attract what will be a quickly growing market sector and seek to dominate it before the dinosaurs get a look in. 75% reduction in premiums is only unattractive if you realise the alternative is a 100% reduction.