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Contributed on October 22, 2015

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Driverless Cars Could Shake Up Auto Insurers

Over the weekend the Wall Street Journal had an interesting article which reinforced the inevitability of driverless cars. Bad driving causes congestion – in fact, 40% of the traffic tie-ups are caused by bad driving. There are many powerful forces that will be opposed to driverless cars, but this article is yet more evidence of the unstoppable coalition of people who will steamroll over the objections. Regardless, there are five key reasons the self-driving car will be here sooner than you think:

1. Getting to your destination faster. Less congestion means less time in the car.
2. Your time in the car becomes productive. Instead of focusing on the road and the car in front, you can now get work done while commuting (without risking your life!).
3. Fewer worried parents. This time of year is most dangerous for teenage drivers. Self-driving cars eliminate that worry. 
4. Seniors not trapped in the house. Many seniors aren’t allowed to drive. Many more don’t like to drive. The driverless car frees them up to get out of the house to run errands or visit family. It will be hugely liberating for older drivers.
5. Much lower cost of ownership to drive. Most cars are in the garage 90% of the owners waking hours. The high purchase price and fixed cost of a vehicle are amortized over very few hours. With self-driving cars many people will have a huge incentive to be part of sharing services – with the exception that the car will come to you. The cost of going from A to B will be much lower.

From an insurance perspective, you’ve probably noticed that I didn’t even talk about lower insurance premiums. Obviously the self-driving car will have fewer accidents and hence a lower insurance cost. There is good reason to believe that a huge chunk of these savings will be delivered by the smart car features now ubiquitous in luxury cars becoming more widespread.

A more interesting implication: what’s the future of many companies that are focused on individual auto? Aside from falling premiums, it will likely be car sharing services buying most of the insurance (or even the manufacturers). We may be very surprised by who the leading auto insurer is in 2030.

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