The Impact of Self-Driving Cars on the Automotive and P&C Insurance Industry

Google's_Lexus_RX_450h_Self-Driving_Car

This is a guest blog post by Henning Rokling, founder of Startle and freelance consultant on digital transformation.

In 2012 Google started live trials with the Google Self-Driving Car. Since then more than a million miles has been travelled by their fleet of autonomous vehicles. Initially perceived as highly ambitious, automotive industry and tech industry execs now agree, assuming legislators catch up, that autonomous vehicles will be available to consumers within 5-10 years. This will have great impact on the automotive and insurance industries.

Perhaps the greatest evidence that autonomous vehicles is happening is that everybody’s getting in on it. From the Sharing Economy, entrants include Über and Lyft. The automotive industry has Tesla, as well as Mercedes (Daimler) and other old timers from both US and Europe. And not surprisingly, from the high-tech side, Apple has decided to join Google in the race. A notable absence is Avis, Hertz and other rental-car companies.

As society moves towards driverless cars we stand to reap a multitude of benefits, including decreasing traffic congestion, fewer accidents, improved mobility for children, the elderly and disabled, and maybe even the end of Parking-as-a-Problem. The advantages are obvious.

However, the biggest change could be with ownership, moving from owning your own car to a Pay-As-You-Go-model accessing fleets of cars when you have transportation needs. This change of ownership model would massively impact the business model of the car industry as we know it, doing away with sales and distribution. Mercedes would operate the Mercedes fleet, Über its own fleet of Über cars, alongside Apple, Tesla etc.

As we all know, owning and driving a car comes with a liability. Personal automobile insurance is mandatory almost everywhere, making Auto Insurance one of the main forms of insurance. In the US alone it is estimated at $220 billion according to numbers from IBISworld, about 1/6th of the total US insurance premium according to the Federal Insurance Office’s 2014 Annual Report on the Insurance Industry.

Cars will drive as they’ve been programmed to do – and autonomous vehicles will shift the liability of accidents from human drivers to the manufacturers. Self-driving cars obviously need to be insured, but fleet operators of autonomous vehicles would be so large that they’re able to arrange their own re-insurance syndicates.

Slowly eroding premiums from Auto Insurance will be a reality for Property and Casualty insurers when this scenario starts playing out over the next ten years.

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