Will Autonomous Cars Be the Insurance Industry's Napster Moment?

An anonymous reader writes: Most of us are looking forward to the advent of autonomous vehicles. Not only will they free up a lot of time previously spent staring at the bumper of the car in front of you, they'll also presumably make commuting a lot safer. While that's great news for the 30,000+ people who die in traffic accidents every year in the U.S. alone, it may not be great news for insurance companies. Granted, they'll have to pay out a lot less money with the lower number of claims, but premiums will necessarily drop as well and the overall amount of money within the car insurance system will dwindle.

Analysts are warning these companies that their business is going to shrink. It will be interesting to see if they adapt to the change, or cling desperately to an outdated business model like the entertainment industry did. "One opportunity for the industry could be selling more coverage to carmakers and other companies developing the automated features for cars. ... When the technology fails, manufacturers could get stuck with big liabilities that they will want to cover by buying more insurance. There's also a potential for cars to get hacked as they become more networked."

Comments

Balancing Act

[Anonymous Coward]

Insurance is all about a balancing act between charging enough premiums to cover the pay outs as well as whatever profits the company can get away with. Autonomous cars will probably not be able to get away with a zero liability claim, so there will still be a smaller premium to be charged to go along with those smaller payouts.

Re:Balancing Act

[es330td]

as well as whatever profits the company can get away with

Insurance companies are regulated by the states which cap their profits. It isn't about what they can get away with, they get what they are allowed. That is the devil's bargain they make for being the provider of a product required by law.

HAHAHAHA!

[Anonymous Coward]

but premiums will necessarily drop as well and the overall amount of money within the car insurance system will dwindle.
 
You have no idea how this works, does you? How much you pay for a service has nothing to do with how much it costs to provide a service. It's a matter of how much the market will bear. Why else do you think there are rubes out there still paying for text messages?
 
And the auto industry has it good, at least here in the states... I don't think there is anyplace it's legal to drive without insurance. They got you coming and going.

Re:HAHAHAHA!

[Anonymous Coward]

"You have no idea how this works, does you?"

Well, Actually you're both wrong. I have several family members, and family friends at various levels in the insurance business. Two aunts are agents, a family friend owns an independent agency, and one uncle used to work for an insurance company.

Insurance is a HIGHLY regulated industry. By state law, and I can only speak to Oregon and Washington because that's where my family is, the total sum of premiums minus claims must be at or near zero at the end of the fiscal year.

Your next question is "How do they make money?" I know it was my first question when I learned this. Very simply put, they invest the premiums on the open market until they are needed for a payout. Essentially, the insurance companies make money earning interest on the premiums you've paid. They are able to hold those investments for longer periods of time by re-insuring (insurance company A buys insurance from insurance company B to cover payouts) to squeeze just a little more profit out from the investments.

So, here's the rub. Legally speaking, if claims take a dramatic dive, so must premiums. Granted, it won't happen over night, but it must happen. If the insurance company is keeping too much of the premiums, there will be problems with the state regulators. This means there will be less money for the insurance company to invest, thus less interest to earn. While the premium minus claim sum will remain the same, all the profit in the middle will disappear.

Without a drastic change in operation, business model, or something, this could mean real problems for an insurance company. If you think the mergers going on now in the telecom / entertainment industries are something, wait until the crunch hits insurers. It's entirely conceivable that when all the dust settles there could be one or two major auto insurance companies, and that's about it.

Why would premiums drop?

[somenickname]

"but premiums will necessarily drop as well"

What evidence is there for this statement? Insurance companies are not known for lowering rates. My rates continue to go up even as the value of my vehicles diminishes and I have 0 accidents, 0 claims and 0 tickets on my record.

Re:Why would premiums drop?

[DarkOx]

Insurance auto and home are funny industries. While most business try to retain long time customers and treat them well the insurance industry does the opposite.

The logic is apparently chaining insurers is something people find a pain in the ass. Being a long time customer does not add to your value as far they are concerned. No they are so efficient at paper work the overhead of on-boarding etc from customer churn is so low they don't care. They figure you having been on the rolls for awhile means you won't bother to switch and they can keep over charging you.

Just changing carriers every four years or so will frequently get you better rates.

Winter?

[nightsweat]

Ain't nothing going to happen with autonomous vehicles until they solve the rain and snow problem. Maybe California doesn't have to worry about vehicles in precipitation, but the rest of the nation does.

Re:Ha, lower rates lol

[gurps_npc]

Not equivalent. Traffic deaths have dropped but monetary damages per accident has gone up.

One of the major reasons traffic deaths went down is we redesigned cars so that instead of being able to withstand a crash without injury to the car, they absorb the crash in a 'crush zone', meaning the car itself takes the damage instead of a person.

In addition, the value of cars has risen over that time, as we put in a lot more features on them. So damages went up

Great News

[Geste]

"that's great news for the 30,000+ people who die in traffic accidents every year in the U.S."

Great News? Dude, they are DEAD!

Not insurance, but lawyers

[gurps_npc]

My sister is a lawyer who is semi-famous for defending car accidents, particularly drunk driving cases.

Her industry may not exist in 20 years.

In fact, all traffic based lawsuits may vanish as people find it makes more sense to move to a no-fault insurance system when most cars are driven by computer.

It's Even Worse for Insurance Companies...

[SwashbucklingCowboy]

With automated cars, taxis will become much less expensive meaning that fewer people will buy cars so fewer people will need insurance. 20 years from now things are going to be VERY different...

Insurance is but one upended industry

[schwit1]

Auto manufacturers
Auto repair shops
Gas stations
Auto parts stores
Taxis and Limos
Motor sports
Motor vehicle related advertising

None of these survive as they exist today. There's probably a dozen more.