Insuring Autonomous Vehicles
Moody’s the rating agency is predicting that once autonomous vehicles become mainstream, accident frequency will fall sharply translating into significantly lower premiums for individuals and autonomous fleet owners and operators.
Moody’s is correct in their assumption of a lower frequency of accidents as autonomous vehicles do not become distracted or run red lights.
McKinsey & Company is projecting that autonomous vehicles could eliminate 90% of all auto accidents in the U.S.
By eliminating 90% of all auto accidents in the U.S. there would be a cost savings of up to $190 billion in damages and health costs.
Recognizing that the auto insurance market would dramatically change with the adoption of autonomous vehicles, Oan, a global provider of risk management, insurance and reinsurance published Autonomous Vehicles – The Risks and Rewards of the Future of Personal Transportation which stated:
The implications for the personal auto insurance industry are likely to be enormous. Currently, a driver’s insurance rate is principally based on a combination of driving behavior and driver profile. The metrics used for such calculations may well have to be reconsidered in the context of self-driving vehicles.
Indeed, the role of the personal auto insurer may have to be reconsidered – perhaps the financial protection provided by these insurers may be shifted to OEMs, infrastructure providers or a new government-provided solution that will facilitate cooperation of all stakeholders. With the expected dramatic drop in vehicle accidents and their related costs, the personal lines auto insurance industry may very well become obsolete.
Today Oan is insuring self-driving car tests on public roadways in Europe to asses the benefits and risks of autonomous cars for insurance providers. Furthermore Oan is also insuring WePods in the Netherlands to develop insurance models for autonomous public transportation.
Other global insurance companies should follow Oan’s lead and experiment with new business models that vary depending on the autonomous driving level of the vehicle in question.
As forward-thinking cities partner with autonomous vehicle manufacturers to implement public autonomous transportation to solve last mile issues, insurance companies should work on developing insurance that is bundled to the vehicle, not the occupants while limiting the liability for everyone involved.
John Maddox, CEO of American Center for Mobility located in Ypsilanti Township, MI (outside of Ann Arbor which is dedicated exclusively to the future of autonomous transportation) sums up his thoughts on autonomous transportation as: “We want to make sure that the U.S. is in the lead when it comes to automated vehicles.”
I wholeheartedly agree with Mr. Maddox in that he wants the U.S. to be the leader in autonomous transportation.
To become the leader, global insurance companies that operate in the U.S. will have to lead and develop innovative policies that limit the liability of the passengers.
For the auto insurance industry this is Dayton, Ohio 1897 all over again.
In 1897 Dayton, Ohio resident Gilbert J. Loomis purchased a liability insurance policy from the Travelers Insurance Company for one thousand dollars which was the first auto insurance policy ever sold. To put this intro perspective, Henry Ford’s Model T was not introduced until 1908.
The world’s first car insurance policy was sold 11 years before the Model T rolled off the assembly line.
It is time once again for the insurance industry to lead and to prepare for the future.