Do Driverless Cars Spell Doom for the Insurance Industry?

Imagine a car accident: You pull out in front of another driver who clearly had the right of way, causing him to run into you. Typically, this would be an obvious case for the insurance company, but one thing is different: You’re driving an autonomous car and arguing that you are not at fault for the accident.

Related: Are Self-Driving Cars Good For Insurance?

What does your insurance carrier do? And how else can we expect the driverless car of the near-future to alter the insurance industry landscape?

This scenario and many others like it have insurers and insureds alike wondering about the future of auto insurance and considering the emergence of autonomous cars, which, of course, is already a reality. Tesla has introduced its driverless vehicle to consumers, despite the accident that occurred with a Tesla in Florida early this year, when the car’s autopilot feature failed to prevent a passenger fatality. In fact, the development of autonomous vehicles is accelerating across the auto industry

Ford Motor Company, for instance, says it intends to introduce fully driverless cars to the public by 2025, and other manufacturers (Mercedes, Volvo, BMW) are currently creating their own test vehicles. To emphasize how real this technology is becoming, the federal government has already issued regulations on autonomous cars.

Needless to say, these vehicles are already promising big changes in the insurance industry.

So, will the insurance industry become obsolete?

One of the main questions out there is whether the industry will even become obsolete: Why would we need liability insurance for our cars if autonomous vehicles are intended to eliminate accidents and fatalities?

The auto insurance industry generates billions of dollars in annual revenue and supports thousands of jobs, so the disruption that autonomous cars pose is a definite concern.

What’s more, the current speculation about the future of auto insurance rests on the assumption that autonomous vehicles will actually eliminate auto accidents and fatalities. But safety is still a big concern: Insurers still fear this industry’s new, unknown technology (How will the vehicles handle in high traffic? Can the vehicles be hacked? What if the driver needs to take control of the vehicle?).

Additionally, will the technology give drivers a false sense of security and therefore lead to accidents that otherwise could have been avoided?

Related: 4 Ways Driverless Cars Will Change the Transportation Industry

Most argue that these systems will increase traffic safety and reduce distracted driving. Tesla CEO Elon Musk assures his ” self-driving technology to be at least twice as safe as cars driven by humans.” Although the Florida fatality this year caused many to question the validity of Musk’s statement, the fact that just one confirmed death has occurred in over 222 million miles of autopilot-mode driving by Tesla vehicles certainly seems a promising piece of data.

It is hard to dispute the safety benefits of autonomous cars, but what about the benefits related to your auto insurance rates? After all, if autonomous-car manufacturers can convince consumers that they will save on their auto insurance by switching, they are sure to raise interest. According to the Insurance Information Institute, “Even if you don’t plan on getting one, all consumers are likely to financially benefit from self-driving cars.” How? It’s simple: Autonomous cars will make roads safer, meaning fewer accidents and fewer claims filed; and that will mean consumers will be less at risk, so insurance companies will need to lower their premiums overall.

If drivers are convinced that autonomous cars will decrease the chance of accidents, the demand for auto insurance will decrease, and insurance companies will need to accommodate that, too. However, this by no means suggests that insurance companies will become obsolete; people will always want to insure their belongings, especially something as valuable as a car; but traditional pricing models are bound to be affected.

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