Big Changes Are Coming to Auto Insurance - All Signs Point One Way (Part One)

April 27, 2015| Von Charlie Kingdollar | Auto/Motor, Commercial Umbrella, Personal Umbrella | English | Japanese

Region: North America

PropertyCasualty360 attributes an increase in recent claims frequency to:

  • Stronger employment
  • Cheaper gas
  • Poor driving conditions during the severe winter weather of 2015
  • More cars on the road

While a combination of circumstances may have resulted in an increase in auto claims activity, several technological and social trends actually indicate a potentially dramatic decrease in the frequency and severity of auto claims.

Driverless or autonomous vehicles are likely coming to market much faster than many in the insurance industry expected. It is believed that as these vehicles hit the road in increasing numbers, both the frequency and severity of auto accidents will drop correspondingly. According to the ENO Center for Transportation, if 90% of vehicles on the road were autonomous, 4.2 million accidents would be avoided and 21,700 lives saved annually. Even if only 10% of the vehicles on the road were autonomous, ENO estimates that there would be 211,000 fewer accidents and 1100 fewer fatalities per year. 

A study by the Transportation Research Institute at the University of Michigan concludes that driverless cars with an unoccupied “return home” feature could reduce vehicle ownership by 43%. According to Google, the number of vehicles owned could drop by 90%. While a 90% reduction seems unlikely to me, at least in the short term, eliminating nearly half of vehicles owned throughout the U.S. would obviously have a huge impact on the Property/Casualty insurance industry.

Exactly when fully driverless vehicles will be available to American drivers is still a matter of some speculation, but automakers are moving quickly:

  • Tesla has recently announced that their updated model will be self-driving on highways by this summer.
  • Several other automakers are adding the same capability to several models.
  • Earlier this year, Daimler unveiled its driverless F105 concept car.
  • A Mercedes S500 with the company's "intelligent drive" recently drove 62 highway miles autonomously between two German cities.
  • Nissan has promised some kind of autonomous vehicle by 2020.
  • BMW introduced a model with fully-automated valet parking technology allowing the driver to be dropped off and the vehicle to go find a parking space, park itself and come back and pick up the driver when summoned.

In addition, aftermarket driverless technology is already available for certain vehicles. An Audi with aftermarket driverless technology recently began a cross-country autonomous trip.

The predictions for production of fully driverless vehicles generally ranges from two to eight years. Insurers, however, will not have to wait even that long before beginning to see significant changes because assisted-driving innovations are already working to drive down frequency, severity and ultimately premium volume.

Stay tuned for more on this topic in my upcoming blog where I’ll discuss the effectiveness of assisted-driving innovations.


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