Driverless cars are not a thing of the future anymore. With companies like Waymo , and Tesla already in the race while giants like Audi, Renault, and Nissan-among many others-showing great promises with their research and investment into the creation of automated driving atmosphere, we could soon witness a new “normal” as human involvement in the driving experience will literally take a “back seat”.

With the current vehicle stock being replaced by more and more autonomous vehicles, the risk profile of vehicles will shrink in size, leading to a significant drop in total losses for insurance carriers. Given that human error is responsible for more than 90% of all auto accidents, the advent of autonomous vehicles would save almost 30,000 lives per year and would very well mean the end of auto insurance, as we know it.

Stages of Development:

1. The switch from the current driving environment to a fully automated one won’t be instantaneous and would require incremental changes over the period of time. With the presence of foundational technologies that are already in place, like adaptive cruise control and lane-keep assist, driving autonomy will continue to strengthen. Further developments will be integrated which would be required for mass adoption.
2. With the embedding of this technology in vehicles, over time, investments in making the infrastructure increasingly “smart” will take place to create a more holistic driving environment. As more and more auto manufacturers fall in line with integrating driver-less technology in their vehicles, the regulatory framework and policy formation around autonomous vehicles is bound to appear. The presence of U.S driver-less vehicle policy, speaks volumes of the impending switch from regular to autonomous vehicles. As vehicles start making more driving decisions, determining who is responsible in times of an accident-should it ever occur-would need to be clarified. Legal issues surrounding the burden of responsibility would resolve parallelly with changes in technology.
3. As driver-less technology is fully realized, all new cars would have autonomous capabilities and a web of information constantly flowing between vehicles with integrated driving would emerge. The departure of human intervention in driving would eliminate human error altogether, something that auto insurance companies rely heavily on.

Impacts on the Auto Insurance Landscape:

A full-scale introduction of a driver-less era of transportation will bring about a significant change in the auto insurance industry. As the way we drive and commute transforms, the amount, types, and purchase of automobile insurance will be impacted. Cars would not crash as frequently and as severely as they did in the past and this will directly affect claim frequency. Moreover, since auto manufacturers would have all the data when it comes to driving records, patterns, and other activities, it is highly likely that manufacturers would bundle insurance along with the price of their vehicles. This shift will mainly arise due to the absence of much-valued data that auto insurance companies will not be privy to anymore.

Auto insurance rests on the idea that you get compensated if you get injured in a vehicular accident. With the driver-less transportation system, the goal gets shifted to not ever being in a situation like that. In such an instance, auto insurance for the consumer makes little sense. Low frequency of claims coupled with a huge depreciation in total losses for auto insurance companies would force them to rethink their entire operations.

Rethinking Business Models: A Way Out?

While the industry would take a major hit when it comes to providing insurance to the users of driverless transportation systems, the liability would shift from drivers to manufacturers and developers as the sophisticated technology that brings about this whole change would also need to be insured. The integrations in a vehicle would bear the responsibility of accidents. Rethinking insurance in such a way leads to the focus shifting on these parameters:

1. Cyber Security: As human error is completely eliminated from the picture and vehicles incorporate more hardware and software, driverless transportation systems still face a threat from cyber thefts, ransomware attacks and misuse of information. Auto insurance companies need to address these issues and come up with effective solutions.

2. Product Liability: Manufacturers might have turned human error obsolete, but they still run the risk of potential failure in the software systems integrated in the wake of driverless technology. Auto insurers have an opportunity to create a new business plan for catering to this billion-dollar problem.

Planning For the Future:

Auto insurance companies would need to forge partnerships with manufacturers and makers of software systems and identify all ecosystem partners in times of such changes. Investing in big data and analytics and developing actuarial frameworks and models to address the changes in a more advanced driving system.

In a slowly shrinking industry, auto insurance companies can either choose to conduct their business as usual and die out, or adapt to the changes and not just survive but thrive in the face of advancements.