Big Changes Are Coming to Auto Insurance - All Signs Point One Way (Part Two)
In Part One of this blog, I discussed advances in technologies that will likely bring driverless cars to market at a faster pace than many in the insurance industry believed possible. I also discussed predictions of reduced auto ownership as well as reductions in the frequency and severity of vehicle accidents brought about by autonomous vehicles.
Insurers, however, will not have to wait for driverless vehicles to hit the road before experiencing a reduction in the frequency and severity of auto accidents. Assisted driving innovations, in late model cars today, are already making a difference.
The Insurance Institute for Highway Safety recently compared fatalities in 2008 and 2009 vehicle models to vehicles made after 2011. They found the 2008/2009 models had a fatality rate of 48 per million, and the post 2011 models' rate dropped to 28 per million - a 43% reduction attributed in part to new assisted-driving innovations.
There is an increasing number of assisted driving innovations making their way into vehicles, including:
- Crash avoidance technology
- Blind spot assist
- Lane assist
- Automatic speed adjustment
- Keys that can limit a car’s speed
Front crash avoidance combined with automatic breaking is already available on a variety of vehicle models. A study by Ron Actuarial Intelligence concluded that collision avoidance systems could decrease accident frequency by 44%. According to the Highway Loss Data Institute, an organization that analyzes crash data for the insurance industry, forward collision avoidance systems with automatic breaking have already reduced property damage claims by 14% on some Mercedes and Acura models. These systems have lowered bodily injury claims - in which the driver of one car is accused of hurting someone in another - by 16% in the Mercedes and 15% in the Acura. The Volvo XC60 sport utility vehicle has even better results, showing injury claims reduced by more than 33%.
Vehicle-to-vehicle communication (V2V), which allows vehicles to communicate with other vehicles within a 300-yard radius, will be installed in an increasing number of vehicles. Federal regulators are considering mandating V2V be installed in 2017 models. It has been estimated that V2V innovations could eliminate 76% of vehicle accidents - long before many fully autonomous cars are on the road.
Cars with vehicle-to-vehicle communication technology have been driving around Ann Arbor, Michigan for over a year as part of a pilot program.
Even advances in headlights are reducing accident frequency. It’s been reported that Mazda models equipped with their adaptive front headlights have experienced a 10% reduction in the frequency of property claims. Volvo, Mercedes and Acura models with advanced headlighting have also reportedly experienced a 5% - 9% reduction.
Initially, while seeing a reduction in frequency, some carriers may see an uptick in severity due to the costs of replacing expensive technology, such as radar or sonar embedded in bumpers. However, this should be relatively short-lived as cars on the road increasingly have advanced technology and more fender benders are simply avoided.
Insurers will likely not have to wait long before these changes begin showing up in their results. Lower accident frequency and severity for both property damage and bodily injury claims will ultimately force auto premium downwards. If predictions are even close to true, saying that driverless vehicles will lead to a nearly 50% reduction in owned cars, then the premium pie will shrink even further.
As technology takes over many of the functions previously under the driver’s control, liability may also shift from the driver and personal auto carrier to manufacturers of the autos and/or component parts manufacturers covered under CL and Commercial Umbrella policies. If so, the role of carriers may also change.
In the short term, insurers may still see spikes in frequency and/or severity in any given year, but these technological advances are happening apace and the future of auto is speeding towards insurers.