How Driverless Cars Are Going To Affect The Auto Insurance Sector?

What Is A Driverless Car?

As the name suggests, it is an automated or self-driving car which will not need human supervision for navigating and can travel from one place to another on its own. Driverless cars are the much anticipated product of the machine-driven future that we have always dreamt of. They are expected to add convenience to our lives with added efficiency. They are also known as autonomous cars or robotic cars.

Stages Of Autonomous Vehicles:

Driverless Cars

If the stages of autonomous vehicles are divided into 6 parts- from zero to five, zero being a state where only traditional cars are used and five being the representation of a state where only fully autonomous vehicles are being used, we are standing somewhere in between zero and one. The different stages of autonomous or driverless vehicles can be explained as follows:

  • Stage 1: Vehicles will adapt only a few autonomous features.
  • Stage 2: Vehicles will come with at least two automated features like braking and cruise control.
  • Stage 3: The vehicle will be partly autonomous and need constant supervision of a driver.
  • Stage 4: Vehicles will be fully automated but have a ‘human option’ which will allow the driver or passenger to take control at any time.
  • Stage 5: Vehicles will be fully automated and have no option for human interference. They will not come with steering wheels, brake, or accelerator pedals.

Driverless cars are getting a form and becoming a reality as many automobile manufacturers as well as technology giants like Google and Apple are investing their time and money in the development of such cars. Though it has sparked a lot of interest among automobile enthusiasts, it has also provoked a thought among the mass about the impact of these vehicles on the auto insurance premium costs.

The Safety Mechanism:

With the progress in technology, the rate of collision-related fatalities has taken a steady dip. Though the addition of latest safety features have not brought any major change in the number of accidents that takes place, it has reduced the number of accident-related deaths significantly. Autonomous cars come with a number of safety and security features like lane assistance, self parallel parking, traffic jam assistance, and GPS. These features might actually cut down the car insurance rates. As insurance is all about bearing the risk, the addition of beneficial features might actually bring down the cost of buying an insurance policy.

Where Are The Insurance Companies Going To Stand In The Future?

As per a report published by US-based consulting firm, McKinsey & Company, car accidents are going to decrease at a massive rate by the middle of this century. It is highly likely that it is going to have a negative effect on the insurance industry. Autonomous cars will bring down the price of the premiums as very few claims will be raised. Nevertheless, the need for liability insurance will still be there because driverless cars have the option to be driven manually as well. The coverage may vary though. Keeping this apart, the insurance companies might also face a huge dip in business as there will be a decrease in the need of theft protection coverage. With anti-theft features like ‘kill-switch’, which does not allow anyone other than the owner of the car to turn the ignition on, and state-of-the-art GPS tracking system, which allows the car to be tracked easily, the owners of such cars might not even demand for theft protection for their cars. Thus, the cost of premiums is also going to be cut down.

The Impact Of Driverless Cars On Its Insurance Policy:

Even with all the advanced safety features that autonomous cars are going to come with, it is also anticipated that there might not be any major impact on the auto insurance companies at all. In recent years, the automobile industry has come up with a lot of development and are offering many technological advancements in the latest cars. But that has not brought any significant changes in the premium rates. Nowadays, many cars come equipped with collision-avoidance features like front-end crash warning systems and blind-spot detectors. Although these features are made to assist the drivers in avoiding accidents but there has been no noteworthy decline in the number of reported accidents. The number of deaths caused due to accidents have gone down though.

How Are Insurance Companies Going To Adapt To The Upcoming Changes?

Though it is hard to ascertain the exact effect of the autonomous vehicles on the auto insurance companies right now, it is safe to conclude that the change will be gradual and thus insurers will have time to adjust and react to the changes accordingly. As per some reports, there are three major areas where insurance providers can work in the future. They are as follows:

  1. Cyber security: As the cars are going to become more and more automatic, the incorporation of hardware and software will also rise eventually. Thus, the risks related to cyber crimes like cyber theft, ransomware, hacking, and misuse of information related to automobiles might also rise. This is a area where auto insurers can start providing coverage in the near future.
  2. Product liability: A massive liability might arise because of failure of auto-related sensors and chips through software bugs, memory overflow, and algorithmic defects. These kind of liabilities can be covered by insurers.
  3. Infrastructure insurance: Factors like cloud server systems, signals, and other safeguards that will be put up for the protection of riders and drivers will offer a hefty annual revenue potential in premiums. The need to insure and secure the public infrastructure is likely to be vast, but government might ‘self-insure’ these risks and thus the opportunity for commercial insurance is likely to be lower.

In conclusion, we can say that a huge change is coming in the automobile as well as auto insurance industries, but the change can be positive.

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