Insurance sector has little to fear from robot cars just yet

By Glen Mollink

THE machines are coming. From the computers that process our food to the robots that build our technology, automation has now infiltrated almost every part of our lives in some form or another.

And now it appears that one of the final bastions of individualism — the motor vehicle — is about to succumb to the convenience and economic value that machines can bring to our lives.

Google recently completed the first phase of testing for its new self-drive car, and initial reports suggest that the vehicle successfully drove 480,000km without any computer-controlled accidents.

Does this herald a new era for vehicles, their manufacturers and their owners, one that is devoid of speeding, dangerous driving and, ultimately, accidents? And if so, what does a future with minimal accidents mean for insurers specialising in crash damage?

Driverless cars are certainly the hot topic in the motoring industry at the moment. Google is testing vehicles in several US states, while other organisations, such as Robot Car are testing similar systems across Europe.

So successful have the initial tests been that Google is reportedly talking to Tesla Motors about incorporating the technology in the company’s range of electric cars.

However, there are signs that a backlash has already begun.

Experts in the US have already warned that the first accident has the potential to shut down the driverless project for good.

Elsewhere, US lawmakers are holding talks this month to examine the risks, issues, benefits and effects that driverless cars may have in the offing for the country.

But should insurers be worried too?

The short answer is no.

Technology has been creeping into the automotive industry for many years. All Google’s efforts have done is to act as a tipping point for manufacturers, which are now racing to fill their models with ever-more advanced driver-assist functions.

So confident are car makers that some, such as Volvo, are predicting that they will be able to eliminate crashes in their cars completely by 2020.

Does this mean that if a vehicle crashes with this manufacturer guarantee behind it, the car maker will be the liable party, as the product is essentially not fit for purpose?

Innovations at the heart of many safety improvements — such as crash monitoring and smart cruise control — are incremental when compared to driverless cars.

Automated vehicles are a complete overhaul of the human-car relationship, where the decision-making process is removed from the driver and placed in the hands of a robot.

Not only will cars need to be fundamentally redesigned from the engine up, the entire road infrastructure will also need to be upgraded to cope with the new technology.

Our data show that the average age of a repaired car is about eight years.

This suggests that even if the technology was perfected and rolled out commercially today, there would be a significant period of lag time before driverless cars became commercially popular.

Google aims to have its technology available by 2018, but considering its automated cars are currently fitted with hundreds of thousands of dollars’ worth of equipment and technology, it will be some time before car makers can find a financially viable way to make the concept affordable.

There is also the emotional side of car ownership to consider. People aspire to own cars now, and many use vehicles purely for the thrill of driving. Will car ownership be something we continue to aspire to if cars become automated, or will driving become a purely leisure pursuit?

I would argue that driverless technology is far more likely to replace taxis, trains, buses and so on. In fact, many airports and transit systems across the world already feature autonomous monorail options for ferrying passengers around.

Controlled environments such as industrial parks and holiday resorts are likely to be early adopters. It is more than likely this service sector of vehicles will act as a proving ground for the technology long before driverless cars are ever seen on every driveway.

There are plenty of other reasons why driverless technology should not present too much of a threat to insurers for the foreseeable future, ranging from complex regulation and licensing issues, to technology maturation and testing, and, above all, consumer confidence.

Then there is the actual cost of accidents on a road network populated by driverless cars. While their frequency may diminish, it is likely that the cost of repairing cars like these packed full of cutting-edge technology, will rocket.

In fact, it will be many, many years before there is enough data to force premiums down, meaning that, in the medium term, insurers should benefit from fewer claims.

While it is safe to assume that driverless cars are not going to affect insurers for a long time, it is prudent to acknowledge that the technology exists and will continue its slow seep into the industry.

So what will a world filled with automated vehicles look like, and what kinds of trends can we expect to see developing?

The first and most obvious trend is the liable party in a driverless car crash.

Presumably a very high percentage of future accidents will be caused by human error, perhaps meaning that motor insurance will become profitable. Added to this is an interesting side effect from the technology, namely that accidents are likely to happen at lower speeds as the machine is able to execute its braking decisions far quicker than any human can.

This will result in less severe injuries, fewer shunts and fewer whiplash claims.

In fact, this trend already exists to some extent with the improved drive-assistance technology now common in many of the newest generation of vehicles.

Will we see the emergence of a two-tier policy system, with a basic level to cover the vehicle and then a premium to cover humans when they choose to actually drive?

This would potentially remove the need for annualised premiums and hasten the industry towards a model that is based more on pay-as-you-go.

Young drivers are currently paying more for insurance than before to buy a new vehicle, in most cases. Driverless cars will arguably remove this discrepancy as automation democratises vehicle driving, and we may see the cost of cars relative to insurance starting to rise again after having dipped for the past decade.

The future-ready insurer should consider all of the above trends and more as driverless technology develops.

How can these developments be anticipated and applied, no matter how successful driverless technology becomes?

Techniques such as bundling risks, breaking down premiums to associate with different risks, and self-serve, pay-as-you-go models are all potential ways for insurers to start diversifying their operations now rather than waiting for automated cars to go mainstream.

What will be key is developing the flexibility and agility to adopt to whatever the future holds, rather than focusing on a specific future model.




Source: BusinessDay