You hear about how technology is disrupting entire industries, but one that sees disruption coming most clearly is the auto insurance companies. Eventually, perhaps within ten years, automobiles will be driving themselves, and the common assumption is that there will be fewer accidents. But what, exactly, will the industry be insuring: drivers or computer code? How likely will accidents be with this new technology? How much will each accident cost in repairs and human medical expenses?
Today, actuaries can estimate how many billions of miles will be driven by American automobiles, and how many accidents and fatalities will result. The current statistic in America is one fatality for every 94 million miles driven. There are breakdowns by age, gender and location. Actuaries know that certain people are more likely to be involved in wrecks, and engage in riskier behavior, than others.
But they have no idea, currently, how to assess the difference in potential accident rates between a self-driving Tesla, a Lexis and a Sonata. All they know for certain is that Tesla’s Autopilot has driven owners and their families 130 million miles—with one fatality so far. One would assume that the software and sensing equipment are going to improve over the coming decade. But insurance companies also believe that each accident will cost more due to the high-tech parts needed for auto-driving.
Currently, the insurance industry takes in $200 billion worth of premiums. Estimates vary, but up to 80% of that amount could disappear in the driverless car revolution—with a comparable reduction in payouts for accidents. Insurance executives, however, are becoming creative, putting new cyber coverage on the drawing board that would protect the car’s software and pay if you’re somehow hacked while driving. The coverage could also pay for new downloads to your car’s computer.
Meanwhile, how will the insurance company determine who, or what, is at fault in an accident? Was the car being controlled by the driver, or was it operating on its own? Most of today’s automobiles now have a “black box” under the steering wheel which monitors the driver’s activity. These will be enhanced to determine how long it took the computer to transition control of the car to or from the driver, and when that transition occurred, if at all. It could also monitor the health of the car’s computer, and could stop the car if it detects malware, a hacker—or a drunk individual trying to take over manual control.