Recently the press has been getting excited by the prospect of cars that drive themselves. And understandably so. There’s every reason to believe that driverless cars will transform our lives in much the same way as did electricity or the internet. Some newspapers and media have even argued that we’ll have the tech to eliminate bad driving by the end of the decade. So the question is, are they right? And, if so, will insurance premiums plummet?
Right now if you want to minimise your insurance costs, you look for a small, second-hand car from a company like Car Deal Warehouse. Insurance costs can still be high for new drivers, as we all know. But they’re a fraction of what you might pay on for a luxury car. But in the future, there’s every chance that luxury cars will actually be the safest. That’s because they’re likely to be the first to come with fully-autonomous features. In other words, the driver-risk that insurers currently take into account will be eliminated. Instead, insurers will price their premiums based on the proven safety and track record of the autonomous system itself.
It seems far-fetched. But consider this. Today, around a million people a year are killed on the world’s roads. On top of that, insurance companies have to pay out hundreds of billion in claims and compensation. It’s an expensive business and a significant drag on the economy. Self-driving cars promise to reduce those deaths by “an order of magnitude” in the words of Elon Musk. That means we could see a reduction in incidents of around 90 percent. Far from being bad news for insurance companies, this is great news. At the moment, they work on a high-risk, high-premium model. They charge customers a lot of money because customers are likely to be involved in an accident. But they’d rather not operate this way. Instead, they’d prefer it if everybody drove carefully and diligently all the time. They love people who pay low premiums, but hardly ever get involved in accidents. They’d rather have a steady stream of dependable income.
In a future dominated by autonomous vehicles, everybody will fall into this Goldilocks bracket. There won’t be fallible human drivers on the roads anymore. It’ll just be low-risk machines ferrying everybody from point A to point B.
A Reduction In Mundane Human Error
When most of us think about accidents, we imagine big pile-ups on the motorway. But the majority of insurance claims aren’t actually related to these disaster scenarios. Instead, they are far more mundane. Drivers make claims when somebody bumps into their car while reversing, or when the park badly.
But already, we see manufacturers looking for ways to solve these problems. For instance, two leaders in autonomy, Volvo and Mercedes, have invested a lot in parking assist technologies. Now, around a quarter of all new cars, these companies make come with autonomous features that help drivers avoid mistakes.
According to Thatcham, autonomous braking already helps reduce accidents by up to 45 percent. And insurers are reacting in earnest. Most now offer a 10 percent discount for people who own cars with some sort of driverless technology on board. And despite the upfront costs of these systems, they typically help drivers save money over the long term.
Cars are also being developed that can help reduce the amount of accidents resulting from driver fatigue or alcohol use. Mercedes is working on a technology that can tell if a driver is sleepy and prompt them to pull over for a rest. Google are looking into systems that will stop cars from starting if a person has alcohol in their blood.
Could Car Insurance Disappear?
Experts expect that autonomous vehicles will take off after 2018. That’s when the price and the technology will hit the sweet-spot commercially. When that happens, some have argued that car insurance will disappear altogether. After all, if every car on the road is piloted by a perfect robot, there won’t be any accidents, right?
Unfortunately, accidents won’t be entirely eliminated by driverless tech. Cars could still be hit by unpredictable events, like falling trees or sink holes. And cars will still be subject to things like fire and theft.
There’s also the issue around who is responsible if a driverless car crashes. Is it the owner or is it the manufacturer of the system? It’s likely that both will want liability protection if their vehicle malfunctions.
The bottom line is that driverless cars are going to reverse the price hikes we’ve seen in the insurance market. But don’t expect car insurance to disappear anytime soon.