How will Self Driving Cars Disrupt the Insurance Industry?
How will Self Driving Cars Disrupt the Insurance Industry?
Why are self-driving cars safer?
Self-driving cars don’t get tired like human drivers. They make fewer mistakes than humans. An estimated 90% of road accidents are caused by human error and, according to Google, every single incident that has happened during its testing of self-driving cars was caused by a human.
However, new risks will emerge with self-driving cars, such as cyber threats. It also remains to be seen how autonomous cars and human-driven vehicles will mix on the roads. Plus, even AI-enabled machines are vulnerable to damage and accidents caused by environmental factors.
So, assuming self-driving cars dramatically reduce the number of accidents on the road, what are the implications for the automotive insurance industry?
Will drivers reduce their insurance coverage?
Currently, drivers are required to insure themselves on the road. However, the reason most drivers take insurance options over and above the required minimum is to protect themselves against costly accidents. Drivers opt for fully comprehensive insurance, for example, to insulate themselves from the cost of repairing their own vehicle in the event of an accident that was their fault or that of someone uninsured.
When self-driving cars become the norm and accidents are less likely, will drivers want to pay those extra premiums? It’s likely that more drivers of all vehicles will only want to carry the mandatory minimum coverage. This will hit the insurance companies’ bottom line significantly.
Will premiums go down in price?
Now, insurance companies offer reduced premiums to drivers who have driven for years without making a claim. They also provide reductions to drivers who have safety features in their cars, such as parking sensors and driver telemetry.
When autonomous cars reach critical mass and driving becomes inherently safer, drivers will make fewer claims. Insurance companies will find themselves competing to offer the lowest possible prices to consumers, not the best coverage against multiple risks. This will drastically affect both their turnover and margins.
Will new sources of revenue arise?
However, it’s not all doom and gloom for the insurance industry. Self-driving cars will create new revenue streams, which insurers can tap into if they position themselves for this new era correctly.
Driverless cars are expensive and contain a lot of sophisticated technology. Owners may wish to insure themselves against high repair costs. Fleet companies may want to take advantage of this too, as well as insuring themselves against cybercrime – an increasing risk as cars become IT platforms on wheels.
What also remains to be seen is how insurance companies deal with the previously-mentioned time when self-driving and human-driven cars are on the road together. Will they raise premiums for traditional car drivers? It makes sense from a financial standpoint, but it could be a public relations disaster.
How will liability change?
Finally, in the event of accidents involving self-driving vehicles, where no fault can be placed on the human, who assumes liability? Currently, it’s the manufacturer. Google, Volvo and Mercedes-Benz already accept responsibility if one of their self-driving vehicles causes an accident, but that’s a vastly different proposition to when millions of such vehicles are on the road at any one time.
Manufacturers are already insuring themselves against this liability. If this assumption continues as self-driving cars gain traction, this shift will represent a significant new revenue stream for the insurance industry. Insurance companies will find themselves selling direct to large corporations and their legal departments rather than to individual drivers through intermediaries. This dictates an entirely different business model. Can they adapt in time?
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The advance of self-driving cars ushers in a period of uncertainty for insurance companies. The time for them to act is now. The companies who are best placed for these changes, who have systems in place to serve their existing customers as their needs evolve and find new and replacement revenue streams, will be the winners. The work they put in today will ensure their survival tomorrow.
When it comes to established insurers adapting for the future, one option is to look at M&A as a way of quickly absorbing innovative technology companies and expertise which can help these traditional players transform. But given the disruption afoot they need to think laterally.
A perfect example of this was the acquisition in 2017 of Bright Box by Zurich Insurance. Bright Box, the AI-first connected car technology platform, was advised by Hampleton Partners to connect with a strong international brand, with the vision to put its technology at the heart of an integrated automotive and mobility strategy. Now Zurich Insurance is positioning itself at the forefront of the automotive insurtech sector and motorists will soon be able to choose from its ‘smart’ insurance products.
If you would like to find out more about trends driving the fintech and insurtech sectors, download the Hampleton M&A market report today.
Here are some insurtech companies we’re keeping our eyes on:
Cuvva – Flexible pay-as-you-go car insurance
Marshmallow – Smarter car insurance for international drivers
The Floow – telematics and vehicle tracking software
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