Self-driving
cars have been a hot topic lately in the property and casualty insurance
industry. Over this past year, almost every speaker from a property and
casualty insurer mentioned the potential impact of self-driving cars on the
insurance industry. However, few of them described exactly how the industry
will be different, except to state that it will be very different from what it
is today. This article will attempt to fill in the gaps by analyzing the
implication of self-driving cars on the property and casualty (P&C)
insurance industry and specifically, the auto insurance industry.
Before
the analysis, we have to first define the self-driving car in discussion. There
are a couple possibilities. First, the most primitive form of self-driving car
would be one that requires supervision from the driver. For example, currently,
Google's self-driving car requires the driver to manually control the car when
there is construction ahead. This form of self-driving car will most
likely shift the responsibility of the accident back to the driver since
they are supposedly overseeing the car’s operations, so it will have a minimal
effect on the auto insurance industry. However, once the technology matures, it
will be unnecessary to have a driver overseeing the car, and at that point,
Google or other companies that have self-driving technology will
start to be responsible for the accident caused by their "product,"
as it will make no sense to impose the liability on the drivers.
When
the developers are responsible for the self-driving technology, there will be
dramatic shift in the P&C insurance industry. There will no longer be any reason
to insure yourself if you know that Google will be completely responsible for
all damages, which is the most likely case under the strict liability of
current product liability laws. If people stop insuring themselves,
then the major players in auto insurance, such as Geico, Progressive, and State
Farm, will suffer significantly. One may argue that there will still be a need
for insurance, and yes, I agree. However, since the risk is transferred to one
single entity such as Google, thousands of insurance policies will most likely
be reduced to one master policy covered by a single insurance company, and the profit
made from this type of policy cannot be compared to the profitability of the
current auto insurance industry. Further, the auto insurance
industry makes up over 24 percent of premiums for the P&C insurance
industry[1], so if the auto insurance industry decline, it will
cause a huge dent in the P&C market. At the same time, the P&C job
market will be flooded by agents who lost their jobs due to the declining auto
insurance industry.
However,
the auto insurance industry will not be completely eliminated. One of the auto
insurance industry services that will remain is its extensive claim service
network because regardless of who is taking responsibility for the claim, the
claimants and the subjects of the accidents still need places to get their
money and fill out the legal forms. I predict that these current auto insurance
companies may cooperate with companies such as Google, and they will administer
the claims in return for a lump sum fee.
One
may argue that self-driving car is still far away from widespread use because
the system is too expensive. As the Washington
Post pointed out, the self-driving car's 3D sensor alone costs $70,000
dollars[2]. However, these sensors, like any other technologies,
will most likely follow Moore’s Law and their prices will decrease by half
every year, but the performance will increase by twice as much. After only a
few years, the cost of the self-driving system will fall to the range that is
affordable to the public.
One
may also argue that self-driving cars will be delayed significantly due to the
current driving laws, but looking back at history, technologies often shape the
way we make laws and not the other way around. Also, if there is problem with
liability, some firm will surely hire many lawyers to work the problem out.
In
the coming decades, the self-driving car will definitely emerge somewhere in
the world, even if it does not start from the U.S. Of course, all of my
predictions are pure speculation, so please comment below and tell me what you think
will happen!
[1] National Association of Insurance Commissioner, Property & Casualty & Title Mid-Year
2013 Industry Report (2013), www.naic.org
[2] Brad Plumer, Here’s
what it would take for self-driving cars to catch on (Oct 23, 2013),
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/10/23/heres-what-it-would-take-for-self-driving-cars-to-catch-on/
