It was supposed to take up to a decade for self-driving cars to hit the road in numbers big enough for the auto insurance industry to take notice. But at the recent State Insurance Trade Associations (SITA) conference held in Las Vegas, representatives from the auto insurance industry heard that self-driving cars could be on the roadways as soon as 2017.
That has the insurance industry asking important questions.
“Are we ready for these cars?” said Pete Moraga, a spokesman for the Insurance Information Network of California who attended the conference. “Are roads going to have special things built into them to help them drive? At some point there has to be policy changes in how these cars are looked at.”
Part of the challenge for insurers is that these cars have no past claims history to help insurance companies predict future claim rates, Moraga said. But, more importantly, in some states like California, regulations have to change if insurers are to offer any type of coverage at all.
“In California, there’s Prop 103,” Moraga explained. That amendment means insurers must consider miles driven, years of experience the driver has and the driver’s violation record when setting rates.
That means in California self-driving cars would take two rating measures from the insurance industry away.
“There’s going to have to be a policy change just for insurers to offer coverage,” Moraga said.
“That will have to be addressed,” agreed Michael Barry, a spokesman for the Insurance Information Institute. “Basically, Prop 103 laid out the variables that the driverless car, which couldn’t have been envisioned in 1983 [when the law was approved by voters], will negate the factors used to set insurance rates.”
Insurers Still Have Time to Figure It Out
While many in the industry are trying to figure out how to accommodate these new vehicles much sooner than expected, Barry—who also attended the conference—said it will still be many years before self-driving cars are the norm on the road.
“It’s a whole market that, who knows whether there will be demand for these vehicles?” Barry asked. “Will human beings be eager to take their hands off their vehicle?”
Barry also noted research by the market research firm Polk showing many cars stay on the road for more than a decade before being replaced. Barry said that even if self-driving cars hit the road in 2017 as predicted at the SITA conference, the insurance industry will still have time to respond to the market before the cars become the norm.
That’s if they are correct in their prediction, Barry added.
“The reaction was this is pretty far along, but maybe some of the presenters were a little ambitious in how many vehicles would be on the road in 2017,” he said. “The idea that this total change in the landscape will take a lot longer than some of the presenters envision. But there’s a lot of interest in the technology.”
The Insurance Industry’s Place in a World with Self-Driving Cars
The issue of self-driving cars is important to auto insurers because it could potentially mark a significant change for the industry. Proponents of self-driving cars say the vehicles, which will rely on cameras, lasers and motion sensor technology, will eventually be much safer than human-operated cars. Supporters also say these vehicles could be used to relieve congestion and bumper-to-bumper traffic, both of which are conditions that can help cause car wrecks.
That might sound like good news for the car insurance industry, which strives to eliminate potential risks. But if there is an absolute minimal chance of risk, insurance companies won’t be able to charge for premiums at current levels.
“Auto insurance is the most profitable line of business for most insurers, so how companies respond is going to be very important to the entire industry,” Moraga said.
And, as Online Auto Insurance has previously reported, there is also the issue of which party would be responsible if a car was involved in an accident. Panelists at the SITA conference discussed that issue in depth, with experts acknowledging there are more questions about fault than answers.
For Moraga, the presentation at the SITA conference was an important reminder that the future is coming much quicker than anyone thought even just a year ago.
“This isn’t an if; it’s a when,” Moraga said. “We don’t know how soon the insurance industry will adapt.”
But Michael Barry noted that even if the future does come, there will always be a need for insurance.
“Even if an accident never happens again when everybody is riding around in these [driver-less] cars, there are still going to be those tree branches that fall or that wayward baseball that smashes a windshield, and that will be covered by insurance,” Barry said. “At the end of the day, a car is property, and there will always be a demand for insuring valuable property.”