Would self driving cars defeat the insurance industry?

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One of the industries that has taken advantage of statistics is insurance. Today, we get our prices for life, cars, medical, education insurance based on what groups of numbers we represent. When applying for an insurance, you get questions like, how old are you, male or female, do you smoke, how frequently do you drink, do you have kids, are your parents healthy, etc, and each of these questions has a statistical meaning and a probability for the company. All these means that you will be group in a segment that will be assigned the probability for you to get sick, get in an accident, fulfill your payments for education, etc. and based on that price your premiums.

Today we are going to talk about how technology might impact this profitable industry and what implications might come for them. To get the example of how might be disrupted, lets understand how autonomous cars work. A driverless car, self-driving car, robotic car or unmanned ground vehicle is a vehicle that is capable of sensing its environment and navigating without human input. Many such systems are evolving and as today no cars permitted on public roads have been fully autonomous. There are now 30 companies involved in the development of autonomous vehicles, according to research from analyst firm CB Insights. Companies developing and/or testing driverless cars include Audi, BMW, Ford, Google, General Motors, Volkswagen and Volvo.

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There are many studies on how this technology might impact everything involve on it. However, a new report has analysed the impact of driverless cars on the incidence of fatal traffic accidents, and say that simply by taking human emotions and errors out of the equation, it could reduce deaths on the road by 90 percent. That’s almost 300,000 lives saved each decade only in the US, and a saving of US$190 billion each year in healthcare costs associated with accidents.

The projections and potential growth on these vehicles, based on a report from Mckinsey & Company indicates that by 2050 this 90% reduction will be reached. Fortune.com predicts that by 2040 a total of 95% of cars will

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be autonomous. That is 10 years earlier. 

 

Most people believe that by 2020 the technology will be ready and available. However there are many implications that will happen in order to make it available for everyone. As an example, take regulation, government policies and laws. Today you are required by law to have insurance in case you get in an accident. However, if there is no driver and the car is consider an intelligent car, with all the sensors and technology to be driven by itself and still gets into an incident, who would or should be liable?, the owner of the car or the company that produced the car? the person in the other car claiming that the self driven car made him/her to crash? would these be also reasons for insurance companies not to pay and get more profit?. Lets talk about the users, how many people would you think are ready to step into a self driving car and be comfortable of a freeway or a school street?. There are some implications that would change our behaviors as consumers and users and some of us might not be ready for it. As a matter of fact, that could be also one reason that most car industries would use in order to manage R&D resources or to lead the technological development, reason why we keep on hearing that Google, Apple, Tesla and Uber are amongst the most representative companies transforming again another industry. It will not be a surprise that we might see many car companies disappear by not being able to adapt either to hybrid, electric or self driving cars.

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If the numbers about predictions are true, we could assume that by 2030 we should see and impact on insurance covering car incidents. That is 12 years from now. In order to get there the change will happen faster in terms of regulation, testing, usage, adoption and safety record. Therefore, the premiums you will pay might be based on the quality of the manufacturing company and the probability of having a mechanical issue or technological failure, if you buy a car that is self driven you should be paying much less that you are paying today. This is one aspect that might change the industry for sure. Today, the industry is not growing in revenue as they might want. For example, the total revenue of life and health insurance industry in the United States from 2009 to 2015 (in billion U.S. dollars) is almost flat. Therefore, they will need a way to figure it out how to grow. However, the others sources of income for the industry will also be at jeopardy. But, what would happen to other income areas such as healthcare, natural damages, etc. That is something that will suffer because of technology, and will contribute to transform the industry faster and sooner than we think, since will put more pressure in the revenue and efficiencies but only not he short term, a transformation seems to be inevitable. Self driven cars might be the first to start putting pressure on it.